Dow drops below 10,000 as world stocks plunge

NEW YORK -- The Dow Jones industrial average plunged more than 500 points in trading on Monday, pushing it below 10,000 for the first time since October 2004, as investors bailed out of stocks on fears that the credit crisis is spreading economic havoc around the globe.

Traders on Wall Street said the government's $700 billion economic rescue plan signed into law Friday might not be enough to calm the short-term economic storm. And that more capital must be injected into the global banking system.

About 12:30 a.m. ET, the Dow was off 493 points, or 4.78%, to 9,832. It was the blue-chip average's first trade below the 10,000 milestone since Oct. 26, 2004. At one point, the Dow was down nearly 600.

The sell-off followed similar stock routs in Asia overnight and in Europe today.

• Stocks in Tokyo closed down 4.3%.

• Germany's DAX lost 7.07%

• Britain's FTSE 100 ended 391.1 points lower at 4,589.2, down 7.8%. It was the biggest ever one-day points fall and the third biggest percentage decline. "Black Mondays used to be a once-a-decade event, now they're coming along more regularly than a London bus," said Manoj Ladwa, senior trader at ETX Capital.

• France's CAC-40 share index closed at 3,711.98 points, a loss of 368.77 points, or 9.04%, its worst percentage drop ever. The previous worst drop in percentage terms for the CAC-40 was on Sept. 11, 2001, when it closed down 7.39%.

Todd Leone, a trader at Cowen & Co., says investors are dumping stocks across the board, with the financial pain being felt in stocks of all sizes and in all sectors of the economy.

"There's nothing green on my screen," says Leone. "They are selling everything. We sliced right through Dow 10,000."

As is often the case in market panics, "herd mentality" appears to be taking over, as selling begets selling, Leone adds.

Falling shares topped rising shares by a 30-to-1 ratio on the New York Stock Exchange. And only one stock hit new highs, vs. more than 1,100 new lows.

A closely followed "fear gauge" hit a record high, jumping almost 20% as investors looking to protect capital fled stocks and moved into the safety of U.S. government bonds.

The yield on the 10-year Treasury note fell to 3.49% from 3.64% Friday.

And the yield on the three-month Treasury note, considered among the world's safest investment, fell to 0.42% from 0.50% Friday. That is a sign that investors are willing to protect their capital at all costs and are OK with getting little or no return to keep their money safe.

The sell-off comes in the first full trading session after the U.S. passed its economic rescue plan.

The losses also come as a wave of banking problems surfacing in Europe, which are now suffering the same problems due to tight credit as the U.S. banks have suffered.

European investors doubt that the U.S. rescue effort to clear bank books to encourage stability and lending would solve credit problems in Europe, analysts said. Investors also weren't impressed by a rush by European governments to step in and boost guarantees on personal saving accounts to prevent panicked runs on banks.

"It's not enough," markets analyst Clem Chambers said of the U.S. plan signed Friday by President Bush. "Half of the EU (European Union) is running around like headless chickens."

Austria, Denmark and Sweden announced that they were providing 100% guarantees or upping the amounts that personal savings accounts would be insured for inside their borders.

The actions came after German Chancellor Angela Merkel on Sunday had offered blanket guarantees to savers there. However, no new legislation was offered on Monday to provide for 100% government insurance on deposits. At present, up to about $40,000 of personal accounts are guaranteed in Germany.

Germany's assurances stunned much of Europe, however, and started the stampede. A day earlier Germany had shunned a proposal by French President Nicolas Sarkozy at a meeting in Paris to provide a European-wide bailout and stabilization plan similar to the U.S plan.

"Merkel's complete 180 — that's the sort of incompetence that will scare everyone (in the markets) to death," said Chambers, CEO of ADVFN, Europe's leading shares and stocks website.

The growing number of government guarantees on deposits came after Ireland last week pledged to back personal savings accounts 100% — action that drew heavy criticism from much of Europe, which complained that gave Irish banks an unfair competitive edge in luring savers' money. Greece followed suit, and Britain raised its insurance on personal accounts from 35,000 pounds to 50,000 pounds, or about $88,000.

Several European leaders, such as Sarkozy, argued that an orchestrated and uniform European approach to the financial crisis was preferable to independent actions in European capitals.

As part of the $700 billion U.S. rescue plan, the amount of personal savings guaranteed in U.S. banks was increased from $100,000 to $250,000.

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding, while France's BNP Paribas agreed to acquire a 75% stake in Fortis after a government rescue failed.