Stocks plunged Monday after last week's rally as weekend news from Iraq left some investors feeling more anxious about the war's progress.
In a day of reversals across most major markets, oil and gold prices jumped while Treasury bond yields tumbled.
On Wall Street, the Dow Jones industrial average dived 307.29 points, or 3.6%, to 8,214.68. The decline took back about one-third of the 997 points the index had gained in the previous eight sessions.
The broader Standard & Poor's 500 index fell 31.56 points, or 3.5%, to 864.23, and the Nasdaq composite lost 52.06 points, or 3.7%, to 1,369.78. Like the Dow, they surrendered about one-third of their recent gains.
"Things got a bit overdone on the upside," said Richard McCabe, chief market analyst at Merrill Lynch & Co. in New York, noting that last week's 8.4% advance in the Dow was the biggest since October 1982.
He said the strong rally left stocks vulnerable to profit taking if the war news turned less favorable -- which is how Monday morning's headlines were interpreted in U.S. and European markets.
Investors were rattled by reports of rising casualties among coalition forces and by warnings from President Bush and others that the conflict may take longer than some might have anticipated. Share prices dropped at the opening of trading and continued lower for most of the session, though there was a modest bounce in the final 90 minutes.
Heightened war concerns triggered a rebound in oil prices, which had slumped last week as stocks surged. Near-term crude oil futures in New York rose $1.75 to $28.66 a barrel after falling in the previous seven sessions.
The stock market's decline was broad -- losers topped winners by more than 3 to 1 on the New York Stock Exchange and on Nasdaq -- but trading volume slowed sharply from Friday's high levels. The drop in volume suggested that there was no wild rush for the exits.
Still, all 30 stocks in the Dow were down for the day, as were 490 of the 500 issues in the S&P; 500 index. The indexes' losses were the largest since September.
Some investment strategists advised clients to jump into stocks as prices fell, arguing that the economy is poised to pick up once the war is over, assuming the outcome is favorable for the United States.
"Buy the dips!" was the headline on a report issued by Banc of America Securities strategist Thomas McManus in New York.
Others advised caution. "I didn't quite understand where the big rally was coming from" last week, said Chip Hanlon, domestic strategist at Euro Pacific Capital, a Newport Beach-based brokerage.
"I'm not a believer that a quick resolution to the Iraq conflict would solve the bigger economic challenges we're facing, anyway. This was yet another bear market rally, like we've seen so many of in the last three years," Hanlon said.
Merrill's McCabe, however, said the skepticism on the part of many investors is a good sign. "That's the psychology of a bottom," he said.
In the bear-market rallies of the last few years, hopes quickly soared -- and the rallies quickly faded, McCabe said. It often turns out, he said, that the market has a better chance of sustaining its rise if people at first are less inclined to believe the advance is real.
Liz Ann Sonders, chief investment strategist at Charles Schwab Corp. in New York, said that last week's rally "was less about a belief that this was going to be a short war than the fact that so many short-term players are in the market.... It was more 'preventive buying' than blatant euphoria over the chances for victory in the war."
Many traders, she said, were fearful that they could get caught owning too few stocks if the war turned quickly in favor of the U.S. and its allies. So they loaded up in advance of the weekend, lifting the Dow 235.37 points on Friday alone.
This week, typical end-of-quarter portfolio shifts by big investors probably will add to market volatility -- on top of whatever the war news does to prices, Sonders said.
Among Monday's market highlights:
* The stock market's plunge drove some investors back into Treasury bonds, sending yields down across the board. The yield on the 10-year T-note ended at 3.97%, down from 4.10% on Friday.
Treasury rates had resurged last week as some investors bet that the economy, and demand for credit, would soon rise if the war was short.
* European stock markets, which had rebounded dramatically last week from multiyear lows, fell sharply ahead of the U.S. market opening Monday.
The German market plunged 6.1%, the British market slid 3.1% and the Swiss market was off 5%.
* On Wall Street, airline and other travel-related stocks were among the session's biggest losers. Many spiked up last week amid initial optimism about a speedy conclusion to the war.
Delta Air Lines fell $1.73 to $9.52, Continental Airlines slumped $1.17 to $5.65, Hilton Hotels dropped $1.27 to $11.64 and casino giant Mandalay Resort Group lost $1.46 to $27.50.
* Retail stocks were broadly lower on renewed worries about consumer spending if the war goes on longer than expected. Home Depot fell 72 cents to $17.74, Kohl's lost $1.85 to $57.35 and Wal-Mart was off $2.15 to $52.52.
* Near-term gold futures rose $3.50 to $329.50 an ounce in New York as some investors ran for cover. That gave some gold-mining stocks a lift, including Newmont Mining, up 17 cents to $24.54, and Glamis Gold, up 11 cents to $9.25.
* Some defense stocks also closed higher. Northrop Grumman gained $2.08 to $84.43, Lockheed Martin rallied $1 to $46.41 and Alliant Techsystems was up $1.37 to $50.27.
* Industrial stocks that had jumped last week on optimism about the economy were hit by profit-taking. Deere lost $2.74 to $40.25, DuPont slid $1.64 to $40 and Emerson Electric gave up $2.12 to $48.35.
Market Roundup, C11-12