Stocks tumble as Dow plunges below 9,000 for first time since 2003

— -- Stocks plunged in the final hour of trading Thursday, sending the Dow Jones industrial average down more than 675 points, or more than 7%, to its lowest level in five years after a major credit ratings agency said it was considering cutting its rating on General Motors

It was the seventh straight session of losses as investors worried recent moves by authorities worldwide to thaw frozen credit markets might not be enough to avert a global recession.

The Dow Jones industrial average, hurt by a steep decline in shares of GM, dropped 678.91 points, or 7.3%, to 8579.19. The blue chips hadn't closed below the 9,000 level since the June 30, 2003.

Much of the pain, again, came from stocks in the financial industries, ranging from mortgage finance and insurance companies. The result was a 75.02 point decline, or 7.6%, in the Standard & Poor's 500 to 909.92.

The Nasdaq composite dropped 95.21, or 5.5%, to 1645.12.

The Russell 2000 index of smaller companies fell 47.37, or 8.67%, to 499.20.

The declines came on the anniversary of the closing highs of the Dow and the S&P. The Dow has lost 5,585 points, or 39%, since closing at 14,198 a year ago. The S&P 500, meanwhile, is off 655 points, or 42%, since recording its high of 1,565.15.

Thursday's sell-off came as Standard & Poor's Ratings Services put GM and its finance affiliate GMAC under review to see if its rating should be cut. GM has been struggling with weak car sales in North America.

The action means there is a 50% chance that S&P will lower GM's and GMAC's ratings in the next three months.

S&P also put Ford Motor on credit watch negative. The ratings agency said that GM and Ford have adequate liquidity now, but that could change in 2009.

GM led the Dow lower, falling $2.15, or 31%, to $4.76, while Ford fell 58 cents, or 22%, to $2.08.

"The story is getting to be like that movie Groundhog Day," said Arthur Hogan, chief market analyst at Jefferies & Co. He pointed to the still-frozen credit markets, and Libor, the bank-to-bank lending rate that remains stubbornly high despite the Fed's recent rate cut.

"Until that starts coming down, you'll be hard-pressed to find anyone getting excited about stocks," Hogan said. "Everything we're seeing his historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It's not the kind of history you want to be making."

The sluggishness in the credit markets that triggered much of the heavy selling in markets around the world since mid-September appeared little changed Thursday following days of efforts by the Federal Reserve and other central banks to resuscitate lending.

Libor, the bank lending benchmark, for three-month dollar loans rose to 4.75% from 4.52% on Wednesday. That signals that banks remain hesitant to make loans for fear they won't be paid back.

The Fed and other leading central banks this week lowered key interest rates to help unclog the credit markets and promote lending to help the global economy. While a rate cut can take up to a year to work its way through the economy, the move was aimed as a boost to investor sentiment.

"We're stuck in a morass and I think it's going to take quite some time to come out of it," said Stephen Carl, principal and head of equity trading at The Williams Capital Group.

Demand remained high for short-term Treasurys, a refuge for investors willing to trade modest returns to protect their money. The yield on the three-month Treasury bill, which moves opposite its price, fell to 0.51% from 0.63% late Wednesday. Longer-term debt prices fell, with the yield on the 10-year note rising to 3.77% from 3.65% late Wednesday.

Stocks continue to be under pressure as the credit markets remain strained. But even more than that, investors have come to the growing realization that if the economy isn't already in a recession, it will be, says Jon Noonan, chief investment strategist at Appleton Partners.

Noonan says the severity of the problem facing the economy make it likely this recession will last longer than any other since World War II. "The stock market will churn longer than we'd like," he says.

With that said, companies with strong balance sheets will likely benefit from the troubles of the weaker firms. And investors who have cash will likely start buying stocks after the historic declines this year. "One of the wonderful things about the stock jmarket is that one person's problem creates another person's opportunity," he says. "Once we get through this capitulation stage, you will see opportunities that will do well."

Investors across markets were mulling a plan being considered by the Bush administration to invest in hobbled U.S. banks as a way to stabilize the financial sector. The $700 billion rescue package signed into law last week allows the Treasury Department to inject fresh capital into financial institutions and obtain ownership shares in return.

Britain rolled out a similar plan, though no U.K. bank has received any investments. In Iceland, the government now has control of the country's three major banks as it struggles to contain the troubles there.

Wall Street is also looking for any effects of short selling now that a three-week ban imposed by regulators has expired. Short selling is a technique in which investors borrow shares in a company from a broker and sell them, hoping to buy them back later at a lower price. Essentially, it's a bet that a stock's price will fall. Short sellers can lose money if they have to repurchase the stock after it has risen.

Some analysts believe the unprecedented ban on short selling — an effort to bolster investor confidence — did more harm than good at a time of historic market volatility. They contend that short sellers help the market rally by covering their bets and creating demand for stocks.

"I think the market's way oversold. But I can't stand in the way of this falling knife — I'd get sliced open," said Phil Orlando, chief equity market strategist at Federated Investors. "Investors are just saying, get me out at any price."

He also said that with the short-selling rule back in play, hedge funds might be shorting again to make up for their forced liquidations.

Volume on the NYSE came to 2.04 billion shares.

In Asia, Japan's Nikkei 225 closed down 0.50% while the Hang Seng added 3.31%. In Europe, Britain's FTSE-100 fell 1.21%, Germany's DAX fell 2.53%, and France's CAC-40 declined 1.55%.