Stocks plunge as investors seek safety; Dow drops 450; gold soars

NEW YORK -- The stock market plunged lower Wednesday as intensifying investor worries over the expanding credit crisis prompted them to dump stocks.

Jitters over the fragile state of financial markets increased dramatically after the Federal Reserve's decision late Tuesday to give troubled insurer AIG a two-year loan of up to $85 billion in exchange for a nearly 80% stake in the company, which lost billions in the risky business of insuring against bond defaults.

"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"

He said the anxiety gripping the markets reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.

The Dow Jones industrial average tumbled 449.36, or 4.1%, to 10,609.66, giving it a shortfall of more than 800 so far this week. The blue chips have fallen more than 25% since reaching a record close of 14,164.53 on Oct. 9 last year.

Broader stock indicators also plunged. The Standard & Poor's 500 index dropped 57.21, or 4.7%, to 1,156.39, while the Nasdaq composite index fell 109.05, or 4.9%, to 2,098.85.

The market's losses were close to those seen in Monday's nosedive, which saw the largest drop in the Dow since the Sept. 11, 2001, terrorist attacks, as the venerable Wall Street giant Lehman Brothers filed for the biggest bankruptcy in U.S. history.

As investors fled stocks, they sought the safety of hard assets and government debt, sending gold, oil and short-term Treasurys soaring.

Gold prices exploded Wednesday — posting the biggest one-day gain ever in dollar terms. Gold for December delivery rose as much as $90.40, or 11.6%, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session.

Gold's previous single-day record was a $64 gain on Jan. 29, 1980. In percentage terms, it was gold's largest one-day advance since 1999.