Dow suffers its worst weekly drop ever

— -- Investors who already thought they'd been through enough suffered through a wild day Friday as the U.S. stock market finished its worst week ever.

The Dow Jones industrial average ended the day down 128 points at a new five-year low of 8,451.19. It was an incredible day in which the Dow plunged 697 points early, was up as much as 322 points later, and had its first 1000-point intraday swing in history, according to Dow Jones indexes.

Even with the late rebound, it capped a brutal eight straight days of selling and the market's worst week ever. The Dow fell 1874 points, or 18% during the week, which on both a point and percentage basis, is more than in any week in the average's 112 -year history. The next largest weekly decline occurred in July 1933, when the Dow fell 17%.

The news wasn't any better with the Standard & Poor's 500 index, which fell 10.70 points, or 1.2%, to 899.22. It's the first time in history the S&P 500 has fallen by 1% each day for seven straight days.

But there was a bright spot for the day as the technology-heavy Nasdaq composite index ended the day with a gain, up 4.39 points to 1649.51. Even though technology stocks have begun to emerge as an area of relative strength, the Nasdaq is still down 37.8% this year.

The market's volatility has been jarring. The Dow's daily moves over the past 30 days has averaged a record in points, 422, and percentage, 4.02%, says Fane Lozman of

Most of the pain come from some areas that had been holding up relatively well — outside of tech — up until this point. Gold stocks for instance declined 14.0%, making it the second worst industry group in the S&P 500 after broadcast media. Oil & gas drilling, energy exploration and entertainment stocks were also weak.

It's getting harder for some investors to hang on, shown by the fact the Dow experienced its first 1000 point swing from low to high in its history. And the losses are massive. The Dow is down 40.3% from its record close last year on Oct. 9, 2007.

Even so, investors with properly diversified portfolios should remain calm even though there's panic around them, says Mark Hebner of asset management firm Index Funds Advisors. "The people that get hurt on a rollercoaster are the ones that try to get off while it's moving," he says.

But there were signs Friday that some investors believe the market is near a bottom. On Thursday, selling accelerated in the last hour of trading. The Dow was down 221 points at 3 p.m. but closed down 679 points an hour later. On Friday, the Dow was down 468 points at 3 but rocketed 790 points and was up 322 points just after 3:30. It then sold off but closed down only 128.

And the Russell 2000 index, which tracks the movements of smaller company stocks, had a 4.66% gain Friday; small-cap stocks are often first on investors' shopping lists when they think a market turnaround is at hand.

Still, Friday's widely mixed finish was proof that Wall Street still has a long list of troubles, and trading is likely to remain volatile when the market reopens on Monday.

"This kind of volatility in the market tells you that there are huge disagreements among investors about what the fundamentals are, about what the outlook is," said Ethan Harris, managing director and chief U.S. economist at Barclays PLC.

The major indexes' sharp swings throughout the day were likely exacerbated by the computer-driven "buy" and "sell" orders that kicked in when prices fell far enough to make some stocks look like attractive bets or make other investors want to exit the market.

The current two-week sell-off has been so severe and wiped out so much stockholder wealth, that some Wall Street strategists are starting to use the word "crash" to describe the carnage.

"It's safe to say that the 25%-decline over the last 10 days is indeed a crash," Paul Hickey of Bespoke Investment Group declared in a note to clients.

Investors suffered a paper loss for the day of about $100 billion, as measured by the Dow Jones Wilshire 5000 index. For the week, investors lost $2.4 trillion, and over the past year, the losses have piled up to $8.4 trillion.

Gary Kaltbaum, president of Kaltbaum & Associates, says fear and panic are now "over the top." He stresses that the sense of gloom and panic "sets the stage" for some kind of rebound. But he is still waiting for "climactic selling action that washes away the last seller."

Central banks around the world were forced to cut interest rates this week after continuing problems in the credit market triggered concerns that banks will run out of money. Analysts have described the mood on trading floors as panicked, with investors bailing out of stocks on fears there is no end in sight to the financial carnage.

President Bush said Friday the government's efforts to rescue the financial sector was powerful enough to succeed but that it would take some time to be fully implemented.

His remarks came as finance ministers and central bankers from the Group of Seven nations gathered Friday in Washington to discuss the economic meltdown.

Investors continue to shift money into safer investments, most of it going into the government bond market. The yield on the three-month Treasury bill plunged to 0.21% from 0.58% late Thursday. That suggests that demand for T-bills, regarded by investors as the safest assets around, remains high.

Longer-term Treasury yields moved higher as investors moved into shorter term issues. The yield on the benchmark 10-year note rose to 3.88% from 3.78% late Thursday.

The volatility in U.S. markets followed a global sell off as stocks plunged from Seoul to Singapore, and then across Europe, after an overnight sell-off in New York on Thursday.

European stocks sank, with Britain's FTSE-100 down 7.9%, German's DAX down 7.0%, and France's CAC-40 down 7.7%. In Asia, the collapse of Japan's Yamato Life Insurance caused already nervous investors to pull even more money out of the market — the Nikkei 225 fell 9.6%.

Trading on exchanges in Austria, Iceland, Romania and Ukraine was halted when losses mounted quickly. Russian regulators ordered Moscow exchanges, where trading has been suspended for two days, not to open as scheduled.

Driving the plunge: Concerns that a global financial crisis that has frozen lending between banks has now seeped across all sectors signaling a worldwide recession.

"We're not talking about fears of recession — recession is here," said Howard Wheeldon, senior strategist at BGC Partners, a London brokerage house. "The question's now how deep, how protracted it's going to be."

The trigger, Wheeldon said, was word Thursday that the credit rating of General Motors gm could be cut.

That led to a massive 7.3% plunge in the Dow Jones industrial average Thursday, with Asian and European investors quickly following suit as markets opened Friday.

"GM is a household name everywhere," Wheeldon said. "If GM is perceived to be in even worse trouble than it was, that's telling the markets this recession is going to be pretty awful."

Gloom from the markets here preceded a meeting by finance ministers and central bankers from the G-7 group of industrialized nations later today in Washington. They gather to try to address the global meltdown in the world's banking systems.

Many nations — including the United States, Britain and Russia — have jumped in in the last two weeks to bail out or prop up their major banks. Many nations haven't, however. And the efforts that have been taken haven't unfrozen lending between banks across the globe. Nor have they opened lending to industry and other businesses.

British Prime Minister Gordon Brown Friday called on other governments to follow Britain's lead and come to the rescue of their struggling banks. Britain this week offered banks a $848 billion bailout. That came on top of a $700 billion U.S. plan signed last week by Bush.

Writing in The Times of London, Brown called for "a global solution" to the financial crisis and said world leaders should gather to devise a plan to restructure financial markets."Because this is a global problem, it requires a global solution," he said.

Morgan Stanley on Friday cut its estimate for Japan's economic growth this year by half to 0.4% and predicted that the Japanese economy would contract by 1% in 2009.

Stocks are collapsing despite a coordinated effort by central banks around the world to cut interest rates this week and flood markets with liquidity. "People have been speculating for weeks about a coordinated rate cut," Moodys Chan said. "Finally it comes, but too late."

The good news, Chan says: The rate cuts show that central bankers are finally committed to jump-starting stalled economies, instead of tightening credit to fight inflation. But panicked investors are looking for bold movies from policymakers in Europe and the United States, where the crisis began with a meltdown in the U.S. housing market, she said.

"It all goes back to the U.S. and Europe," Chan said. "If they slow, the rest of Asia will suffer... More needs to be done to kick-start the recovery process. We expect more turbulence."

In Japan, Kenji Akasaka, 69, president of a printing company, said he had never seen it this bad in the 40 years he has traded stocks. He said he invests mainly in blue-chips including Toyota and Nintendo — both of which have lost about half their value over the last year.

"I pray before I go to bed that the Dow will recover," said Akasaka, 69, as he scanned a monitor displaying the latest market levels. "I get sleepless, thinking about losses."