Dow Drops 200; Fed on Tap

Updated with closing stock prices and major averages.

Stocks in New York suffered sharp, broad-based declines Monday as commodities retreated and the market absorbed a dimmer view of the global economic situation.

The Dow Jones Industrial Average fell 200.72 points, or 2.4%, to 8339.01, while the S&P 500 lost 28.19 points, or 3.1%, to 893.04. The Nasdaq Composite gave up 61.28 points, or 3.4%, to 1766.19.

Losses were broad-based, with industrials, financials and energy among those sagging. Alcoa(AA Quote) and Bank of America(BAC Quote) lost 8.9% and 9.7% -- the worst performers on the Dow. The KBW Bank Index tumbled 6.7%.

Integrated oil stocks were also hard hit, with Chesapeake Energy(CHK Quote) falling 7.6%, BP (BP Quote) losing 4.1%, and Conoco Phillips(COP Quote) shedding 5.9% as crude oil prices slumped $2.62 to $66.93 a barrel.

The Dow fell 3% last week as selling interrupted the multiweek rally, and those losses extended into Monday after news that the World Bank cut its 2009 global growth forecast. It now anticipates the world economy will shrink by 2.9%, compared to the 1.9% contraction predicted in March.

"The way we've looked at is the markets and many analysts are getting too optimistic too quickly," says Paul Nolte, director of investments at Hinsdale Associates. "This is going to be a slow, grinding type of economy that is still contracting and deleveraging, and unfortunately it takes time before we start to see true improvement. So as a result of that we could see wide swings in the equity markets during that time."

The stock market demands better economic news in order to rise now, says Bill Stone, chief investment strategist at PNC Wealth Management. "You can see it play out in the sense that there's an interesting tug of war between days when you get negative economic news and positive economic news; the macroeconomic outlook is really driving the bus."