Signs of a growing crisis

NEW YORK -- Stocks worldwide plunged Monday on growing signs that the credit crisis is spreading to banks and economies outside the USA, sparking a sharp selling spree on Wall Street that drove the Dow Jones industrials below 10,000 for the first time in four years.

Stocks worldwide plunged Monday on growing signs that the credit crisis is spreading to banks and economies outside the USA, sparking a sharp selling spree on Wall Street that drove the Dow Jones industrials below 10,000 for the first time in four years.

Stocks in London fell almost 8%. The Paris market slid 9%, its steepest retreat since 1987. Big drops in Russia and Brazil led to trading halts in their markets. Russian shares fell 19.1%; those in Brazil dropped 4.4% after falling as much as 15%. Tokyo shares fell 5% to a five-year low.

Panic selling spread to Wall Street, where the Dow tumbled 800 points, briefly topping its record 778-point plunge on Sept. 29. A late rally cut the day's loss to 369.88 points, or 3.6%, to 9955.50. It was the Dow's lowest close since Oct. 26, 2004.

Amid a crisis fueled by a meltdown in the mortgage industry, the Dow has lost nearly 30% since Oct. 9, 2007, a fall that has gashed Americans' investment and retirement accounts, raised fears of a prolonged recession and made the economy the top issue in the presidential campaign.

Hopes that Friday's passage of the U.S. government's $700 billion rescue plan for the financial industry would restore investor confidence already are fading, as the worldwide reach of the credit crisis becomes more clear. Many investors fear the plan lacks the punch needed to quickly thaw frozen credit markets and avert a global economic slowdown.

"It's a lethal one-two punch: A global credit crunch equals a global recession," says Nicholas Sargen, chief investment officer at Fort Washington Investment Advisors.

Monday's tumult and volatility were historic. A closely watched Wall Street "fear gauge" skyrocketed to levels not seen since the October 1987 stock market crash, when the market fell 22% in a single day.

Individual investors dialed in to their fund companies for advice and reassurance — and to dump stocks. Traders and money managers gritted their teeth as the value of their stock holdings tumbled $500 billion, extending the market's 2008 loss to $5 trillion and a staggering $6.4 trillion since last October's high, according to Dow Jones Indexes.

"I'm under my desk," said Jeffrey Saut, chief investment strategist at Raymond James. "Brokers are getting calls to just sell everything."

At the peak of the selling, Todd Leone, a trader at Cowen & Co., said, "They are just selling everything. They just want to get out."

Wall Street's red ink has its origins in a housing market gone bust. Like a domino effect, the troubles started on Main Street. A sharp drop in housing prices after a multiyear boom caused millions of Americans to fall behind on mortgages, which led to a surge in foreclosures, which caused massive losses at banks that lent the money.