Stocks capped a difficult week with steep losses Friday amid escalating worries about the financial and automotive sectors and a rebound in oil prices.
The Dow Jones industrial average gave up more than 200 points to end at its lowest level in three months.
While investors have seen other triple-digit days in the past year since concerns about the economy began emerging, the Dow's first finish under 12,000 since mid-March could deal Wall Street a psychological blow.
An afternoon downgrade of automakers helped draw out sellers in the stock market while Treasury prices rose as investors sought the safety of government debt.
A Merrill Lynch downgrade of regional banks added to the market's initial anxiety, which ballooned Thursday when Citigroup warned of significant debt markdowns for the second quarter, Washington Mutual announced 1,200 job cuts and Moody's Investors Service decided late in the day to downgrade the two biggest bond insurers.
Troubling news about the financial sector piled up all week, sending stocks to steep losses. Early on, the investment banks posted profit declines, Fifth Third Bancorp said it need to raise $2 billion in capital and two Bear Stearns hedge fund managers were charged with lying to investors — causing many investors to flee from stocks.
Quincy Krosby, chief investment strategist at The Hartford, said Friday's session saw a confluence of the worries that investors have been grappling with as they try to determine where the economy is headed.
"I liken it to the GPS system saying 'recalculating,"' she said, referring to the market's uncertainty. "There's no clarity, there's no confidence."
Krosby added: "The crosscurrents are coming at a time when the backdrop for the economy appears to be stabilizing. And yet the headline risk is unrelenting."
The headlines Friday helped send the Dow down 220.40, or 1.83%, to 11,842.69. The blue chips haven't closed below 12,000 since March 17, when the market was worried about Bear Stearns collapsing. Friday's pullback left Coca Cola as the only advancer among the 30 stocks that comprise the Dow.
Broader stock indicators also dropped. The Standard & Poor's 500 index fell 24.90, or 1.85%, to 1,317.93, and the Nasdaq composite index fell 55.97, or 2.27%, to 2,406.09.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 5.15 billion shares compared with 4.44 billion shares traded Thursday. Volume was heavy in part because of "quadruple witching" — the simultaneous expiration of four types of options contracts.
For the week, the Dow fell 3.78%, the S&P 500 lost 3.1% and the Nasdaq declined 1.97%.
Bond prices rose Friday as stocks sank. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.17% from 4.21% late Thursday.
Concerns over further tensions between Israel and Iran added to investors' worries and pushed oil prices higher.
"That introduces dramatic uncertainty," Krosby said of the investors' reaction to unease in the Middle East.
Crude oil futures jumped $2.69 to settle at $134.62 a barrel on the New York Mercantile Exchange, recovering some of Thursday's drop of nearly $5 per barrel on news of a fuel price hike in China.
Investors are awaiting the weekend's meeting in Saudi Arabia of oil producers and consumer nations, which could bring some relief to the problem of soaring oil prices. But many analysts believe the gathering might end up being a mere finger-pointing session.
The concerns made for a difficult market.
"There has to be reticence about getting back in," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. "It's definitely an ugly end to the week."
Bond insurer MBIA fell 86 cents, or 13%, to $5.59, while competitor Ambac Financial Group edged up 2 cents to $2.05, after losing their "AAA" rating from Moody's.
Another ratings move hit stocks of automakers. Standard & Poor's Ratings Services placed the corporate credit ratings of General Motors, Ford Motor and Chrysler on watch with negative implications. The classification means ratings have a one-in-two chance of being downgraded in the next three months. S&P believes high fuel costs will hurt the U.S. auto market through 2009.
GM fell $1, or 6.7%, to $13.79, while Ford lost 51 cents, or 8.1%, to $5.81.
The dollar fell against most other major currencies, while gold prices rose.
The Russell 2000 index of smaller companies fell 12.10, or 1.64, to 725.73.
Overseas, Japan's Nikkei stock average dropped 1.33%. Britain's FTSE 100 fell 1.53%, Germany's DAX index declined 2.12%, and France's CAC-40 fell 1.79%.