NEW YORK (AP) - The Dow Jones industrial average plunged below 7,000 Monday for the first time in more than 11 years as investors grow even more pessimistic about the health of banks, and in turn the economy.
A staggering $61.7 billion in quarterly losses at insurer American International Group Inc. (AIG) touched off fresh fears about the health of the nation's financial system.
The worries pushed the blue chips below 7,000 for the first time since Oct. 28, 1997. The credit crisis and recession have now slashed half the average's value since it hit a record high over 14,000 in October 2007.
Investors are fleeing financials after the government said it would give AIG another $30 billion in loans, besides the $150 billion it has already given the company. Investors are worried about European financial companies, too. HSBC PLC, Europe's largest bank by market value, reported a 70 percent drop in 2008 profit and said it needs to raise $17.7 billion and cut 6,100 jobs.
"As bad as things are, they can still get worse, and get a lot worse," Bill Strazzullo, chief market strategist for Bell Curve Trading said. Strazzullo said he believes there's a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.
The "game-changer," he said, will be the housing market and whether it can stabilize.
In late morning trading, the Dow fell 184.94, or 2.6 percent, to 6,877.99. The Dow last closed below the 7,000 level on May 1, 1997.
Broader stock indicators also slid. The Standard & Poor's 500 index fell 21.16, or 2.9 percent, to 713.93, and the Nasdaq composite index fell 31.42, or 2.3 percent, to 1,346.42.
The Russell 2000 index of smaller companies fell 13.24, or 3.4 percent, to 375.78.
Nine stocks fell for every one that rose on the New York Stock Exchange, where volume came to 526.6 million shares.
Personal spending rose 0.6 percent in January and incomes rose 0.4 percent, while construction spending fell 3.3 percent, more than twice as much as economists expected. Manufacturing contracted in February for the 13th straight month, but at a slower pace than expected.
Meanwhile, billionaire investor Warren Buffett wrote in his annual letter to investors Saturday he is sure "the economy will be in shambles throughout 2009 - and, for that matter, probably well beyond - but that conclusion does not tell us whether the stock market will rise or fall."
Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.94 percent from 3.02 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.24 percent from 0.25 percent Friday.
The dollar was mostly higher against other major currencies, while gold prices fell.
Light, sweet crude fell $3.54 to $41.22 a barrel on the New York Mercantile Exchange.
