U.S., foreign stocks drop as financial problems spread

LONDON -- Investors, watching financial problems spread overseas, sent stocks tumbling Monday, despite Washington's $700 billion financial bailout plan.

U.S. stocks fell sharply as investors worried about the stability of the banking sector after Wachovia became the latest major U.S. bank to succumb to fallout from the credit crisis.

Investors feared the troubles facing the banking sector might worsen the economy's outlook and constrain lending, a key pillar of business and consumer spending and vital for profits.

The takeover of Wachovia's banking operations by Citigroup suggested that risks from the credit crisis were mounting, according to analysts.

"With the news on Wachovia this morning, Washington Mutual last week, it just seems a lot of these banks are getting whacked," said Cleveland Rueckert, market analyst at Birinyi Associates.

"People were hoping the bailout would be passed this morning. It still has to go to the House for the vote. People are apprehensive this morning that it might not get passed and we're going to continue to see bank failures."

Apple drove a tech rout after several brokerages slashed their recommendations on the tech bellwether.

Energy companies fell as crude dropped $6.66 to $100.17 a barrel.

On the London Stock Exchange, Europe's biggest, the FTSE 100 index plunged more than 3% by midday, sending the index below the 500 level. In Paris, the CAC 40 index was down more than 3% after noon, and the Frankfurt Dax was following suit.

Concerns over Europe's banking and credit woes — including a multi-nation rescue of one of Europe's biggest banks and the bailout of a second bank in Britain — were driving down markets, said Clem Chambers, CEO of ADVFN, Europe's leading stocks and shares website.

Earlier, in Asia, stocks rallied early, but the gains quickly vanished. By the end of trading, Hong Kong's benchmark Hang Seng Index had skidded 4.29%, to 17,880.68. Tokyo's benchmark Nikkei 225 fell 1.3% to 11,743.61. South Korea's KOSPI retreated 1.4% to 1,456.36.