Updated from 4:24 p.m. EST

Stocks in New York were hammered Monday, with broad-based declines led by financials shaving 4% off the major indices, as the economic downturn and a crisis of confidence continued to wreak havoc on Wall Street.

A triple-digit drop in the

Dow Jones Industrial Average

put the index below 7000 for the first time since late 1997. It fell 299.64 points, or 4.2%, to 6763.29. The

S&P 500

lost 34.27 points, or 4.7%, to 700.82, and the


slid 54.99 points, or 4%, to 1322.85.


(C) - Get Report

was the weakest component on the Dow, falling 20% to $1.20, but the declines were sweeping.


(AA) - Get Report

gave up 11.9% to $5.49, and

General Electric

(GE) - Get Report


General Motors

(GM) - Get Report

tumbled 10.7% apiece.

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One of the key stories of the new week was word that the U.S. government would extend another $30 billion in loans to struggling insurer

American International Group

(AIG) - Get Report

after the firm posted a quarterly loss of $61.7 billion. The new capital comes after $150 billion of taxpayer aid already given to AIG.

Government officials said AIG can decide for itself whether to pay dividends on new preferred shares, and it will get a billion-dollar-a-year break from Washington from easier credit line terms. AIG shares ended the day where they started, at 42 cents.

Those AIG headlines, paired with news Friday that the government was increasing its stake in troubled bank


, drive home the idea that policymakers have underestimated how difficult this down cycle for the economy would be, says Brian Bethune, chief U.S. financial economist at IHS Global Insight.

"It reinforces the notion that more resources will be needed to get the financial system stabilized," he says. "They seem to be moving in the right direction, they know what the problems are, but anything that resembles 'three steps forward and two steps back' or lack of a clear goal in terms of how you're going to stabilize the financial market doesn't really break the cycle of declining confidence."

"We've moved a lot closer to a de facto nationalization of Citigroup and AIG at this point," says Paul Nolte, director of investments at Hinsdale Associates. "It's going to be interesting to see how this all comes out, but essentially everyone is questioning everything. On the investment side people are sitting on their hands. There are a lot of very inexpensive stocks out there, but investors want to see improvement."

Including Monday's losses, year-to-date the Dow is off by 22.9%, the S&P has lost 22.4%, and the Nasdaq has shed 16.1%.

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But some market watchers feel a bottom is in sight. "The sentiment can't get more negative, the bear case is on the table, and when you combine that with the 12-month Relative Strength Index being down where it's been only six times since the '30s, it's only a question of whether to go out with a bang -- a selling climax -- or a whimper, which would be a selling dry-up like in 1974," says Jeffrey Saut, chief investment strategist at Raymond James.

Meanwhile, companies continue to seek relief.

PNC Financial

(PNC) - Get Report

became the latest company to say its board plans to reduce the company's

quarterly dividend

, in this case lowering the payout to 10 cents a share from 66 cents in an effort to build capital.

International Paper

(IP) - Get Report

also cut its quarterly dividend to 2.5 cents from 25 cents. International Paper gave up 10%, while PNC lost 4.5%.

Many companies have scaled back or eliminated dividends as they battle the economic downturn. For instance,

General Electric

(GE) - Get Report

said Friday it would cut its dividend to 10 cents a share from 31 cents.

Not helping to build confidence in a short-term economic turnaround, billionaire

Warren Buffett

said in a letter to investors Saturday that he expects the economy to remain in "shambles" throughout 2009, and probably well beyond, regardless of what the stock market does. Buffett said his insurance and investment company,

Berkshire Hathaway

(BRK.A) - Get Report

, had its worst year ever in 2008.

Shares of

Chesapeake Energy

(CHK) - Get Report

fell 13.7% to $13.50 after the company said it's pulling back its gross gas and oil production by about 240 million cubic feet equivalent a day, and an additional 10% cut in drilling activity is on the table.

Economic hardships have reached across the globe, and investors were alerted Monday that net income for Europe's largest bank by market value,

HSBC Holdings


plunged 70% in 2008. The firm, which said it will cut more than 6,000 jobs, will write no further consumer finance business through the HFC and Beneficial brands in the U.S. and will close the majority of the network. HSBC shares plummeted 18.8% to $28.25.

One promising note came from the Commerce Department, which said that U.S.

consumer spending

rose by 0.6% in January, after half a year of declines, and incomes rose 0.4%. The results were both better than economists had predicted.


construction spending

plunged more than twice as much as predicted in January, according to a report by the Commerce Department. Overall construction spending fell 3.3%, the fourth straight monthly decline, outpacing the expectation of economists surveyed by Thomson Reuters, who predicted a 1.5% drop.

Shedding more light on the domestic situation, the Institute for Supply Management's monthly

purchasing managers' index

rose to 35.8 in February from 35.6 in January and 32.9 -- a 29-year low -- in December.

"The steadiness of the past two months and the relatively tight range of the past four months suggests the rate of decline in factory activity is slowing, although the magnitude of the decline obviously remains large," writes Tony Crescenzi chief bond strategist at Miller Tabak and a



"Underscoring this point is the ISM's employment component, which fell to 26.1 from 29.9 in January, a record low dating back to 1948."

"With unemployment figures due on Friday, expected to surpass 600,000 newly minted unemployed individuals, it will require a Herculean effort by the markets to avoid slip-sliding significantly below the November lows," says Hinsdale Associates' Nolte.

Trying to gauge the effects of the economic decline,


adjusted their take on a few financial and tech names at the start of the week.

Keefe Bruyette & Woods upgraded

JP Morgan Chase

(JPM) - Get Report


Blackstone Group

(BX) - Get Report

to outperform, saying the former could out-earn its peers.

JP Morgan shares were down 7.4%, while Blackstone Group fell just 2%.

Barclays cut its price target for Citi to $3, due to share dilution, and Goldman Sachs downgraded

State Street

(STT) - Get Report

to neutral from buy, on the possibility for future securities writedowns.

Argus Research upgraded

Cisco Systems

(CSCO) - Get Report



(DELL) - Get Report

to buys. Those stocks were down 1.7% and 1.2%, respectively.

Meanwhile, satellite radio company

Sirius XM

(SIRI) - Get Report

will file its annual report later than expected. Sirius said it's now aiming for March 17, because senior management has been focused on recent refinancing transactions. Sirius shares were off by 2 cents at 14 cents a share.

Stocks abroad were mostly lower. The FTSE in London and the DAX in Frankfurt gave up 4.6% and 3%, respectively. Hong Kong's Hang Seng closed modestly weaker, however Japan's Nikkei managed to wrap up in positive territory.

In commodities, oil fell $4.61 to settle at $40.15 a barrel, while gold fell $2.50 to $940 an ounce.

Longer-dated Treasuries, though, were on the uptick. The 10-year note was rising almost 26/32 to yield 2.90%, and the 30-year was higher by 29/32, yielding 3.70%. The dollar was weaker against the yen, and stronger against the pound and euro.