Stocks fell into another harrowing decline worldwide Wednesday as fresh worries over Japanese banks raised fears of a broader and deeper global economic slowdown.
On Wall Street, the heaviest losses were in U.S. blue-chip stocks, many of which had been holding up well amid the meltdown in technology shares.
The Dow Jones industrial average suffered the sharpest slide among U.S. indexes, falling 317.34 points, or 3.1%, to 9,973.46--its first close below the psychologically important 10,000 mark since mid-October.
The Dow has tumbled hard in three of the last four days, falling almost 900 points in that period.
Wednesday's market dive began in Europe, driven by concern that the global economy may be at far greater risk of recession than previously assumed.
A U.S. credit-rating agency overnight downgraded 19 Japanese banks, saying their financial condition faces new threats from tumbling share prices and a still-huge pile of bad loans from the nation's decade of economic turmoil.
The downgrades sparked a rout in shares of European banks on concern that Japanese loan losses could have a domino effect among interlinked lenders worldwide. When U.S. trading opened, shares of Citigroup, J.P. Morgan Chase and other giants with sizable Asian lending operations also slid.
Today in Tokyo, stocks plunged at the outset, with the Nikkei-225 index down 410 points to 11,433--a 16-year low--in early trading. But buyers jumped back in later, and the index closed up 309.24 points, or 2.6%, at 12,152.83.
This week's heavy losses in global stock markets, beginning with Monday's 436-point Dow plunge, have opened a new chapter in what is now a yearlong sell-off.
U.S. stocks have been buffeted over the last year by a slowing U.S. economy, which has led to disappointing profits at a slew of American companies--especially formerly highflying tech firms.
Though the Japanese economy's weakness is no surprise to global investors, there has been a general sense that Europe remained relatively healthy, and that the U.S. economy could avoid recession.
But the renewed plunge in Japanese shares in recent weeks, a deep political crisis in the Japanese government and a further collapse of U.S. tech shares have shaken confidence. Given the fragility of investors' nerves, any hint of a greater threat to the world economy has become reason enough to dump stocks, analysts said.
"We've got the U.S. and Japan slowing, with Europe probably slowing too," said Jon Brorson, director of stocks at Northern Funds. "That's why it's a big deal. That's why it's more than just a [technology] sector correction. It's a [broadening] bear market."
Indeed, for Americans, the Dow's dive this week signaled that the U.S. bear market, which until recently had been confined largely to tech stocks, is spilling into many other sectors.
That is creating deeper losses for a wide swath of investors. Though many people have been burned by the tech-stock sell-off, most investors' stock assets are concentrated in big-name stocks and in mutual funds that own those shares.
The risk is that as investors incur losses in their blue-chip shares, some could abandon the market in much the same way that many tech-stock owners have. That could set in motion a vicious cycle in which falling stock prices cause investors to sell shares, pushing prices down further.
The Standard & Poor's 500 index of blue-chip stocks dropped 2.6% Wednesday and now is down 23.6% from its record high a year ago. That is the steepest decline since the market crash of 1987.
Even though the U.S. economy, by most accounts, has slowed but is still growing, investors have faced a barrage of earnings warnings this year from firms whose sales are suddenly coming up short. On Wednesday, a number of high-profile firms joined that list, including McDonald's Corp., insurance company MetLife and wireless telecom giant Nextel Communications.
If there was a bright spot amid Wednesday's sell-off, it was that the tech-dominated Nasdaq composite index sank only 2.1%, a smaller decline than the Dow's slide. The Nasdaq index lost 42.69 points to 1,972.09.
Tech stocks held up better because they have fallen so far already, and some investors figure there is little point in selling them now, analysts said.
"Technology is already down so sharply, how much more are you going to pummel them?" asked Jeffrey Applegate, strategist at brokerage Lehman Bros. in New York.
Instead, investors unloaded stocks in the banking, defense and transportation industries. Stocks down sharply included Citigroup, off $3.49 to $44.90; United Technologies, off $4.25 to $75; and Delta Air Lines, off $1.59 to $39.97.
Overall, falling stocks outnumbered winners by about 3 to 1 on Nasdaq and on the New York Stock Exchange in heavy trading.
The drop in "old-economy" stocks in recent days is a major shift from the last year: As tech shares have tumbled, shares in many other sectors have risen.
In fact, since its peak March 24, the S&P; index is down almost 24%. But excluding its tech stocks, the index is up 2.6%.
"The 'old economy' has been going up for a year, and the 'new economy' has been going down," said Peter Canelo, strategist at brokerage Morgan Stanley Dean Witter in New York. "We may be closing that gap with a recovery of various segments of the new economy and damage in the old economy."
The fresh worries about Japan put additional pressure on the Federal Reserve to cut interest rates when its policymaking committee meets Tuesday. Many analysts expect the Fed to cut rates by half a point, as it did twice in January.
In Tokyo, Bank of Japan Governor Masaru Hayami hinted today that his central bank might cut its key rate to almost zero when policymakers meet Monday.
But U.S. stocks have been selling off in part because of uncertainty about whether more Fed rate cuts will follow next week's expected cut. In Japan, the concern is whether even a zero interest rate will help that struggling economy.
Some recent data--including auto and housing sales and employment figures--have indicated that the U.S. economy will avert a recession. Fed Chairman Alan Greenspan also has said the economy appears to be picking up moderately from its severe downturn late in 2000.
But some investors are worried that the Fed is moving too cautiously to prevent a recession.
Still, not all investors have been spooked by Japan's latest woes or by the widening U.S. stock sell-off.
J. Thomas Madden, chief investment officer at Pittsburgh mutual fund group Federated Investors, said Japan's problems are well-known, not a bolt from the blue that will torpedo the market.
Japan's banking woes "heighten concern in the financial markets [but] don't translate into some kind of systemic global financial crisis," Madden said.
Charles Pradilla, strategist at New York investment firm SG Cowen, said the broadening of the market sell-off may be a blessing of sorts. Market blood baths often end when investors throw up their hands at stocks and sell holdings that they had clung to previously--such as cherished blue chips.
The selling of the last few days indicates that people are getting "really disgusted by the market," Pradilla said. "We're coming near the end."
Risks rise for global economy as troubles multiply. C1
* SAFE HAVEN
Yields fall as panicked investors flee to Treasury bonds. C4
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Blue-Chip Stock Funds Dive
Many blue-chip stock mutual funds that are popular with investors in 401(k) retirement plans have suffered sharp declines this year, deepening their 2000 losses. A sampling of major funds and their returns in 2000 and year to date through Wednesday:
2000 YTD Fund return return Fidelity Equity-Income +8.5% -6.0% Vanguard Index 500 -9.1 -11.4 Growth Fund of America +7.5 -11.7 Fidelity Magellan -9.3 -11.9 Fidelity Contrafund -6.8 -13.1 Janus Fund -14.9 -15.7 American Century Ultra -19.9 -16.7 Putnam New Opportunities -26.2 -21.7 Fidelity Growth Company -6.3 -23.7 Vanguard U.S. Growth -20.2 -26.6
Sources: Times research, Bloomberg News