Stocks Sink Late as Recession Fears Win Out - TheStreet

Updated from 11:58 a.m. EDT

U.S. stocks traded erratically Monday, as has been the story for weeks, and ultimately closed lower as the prospect of a

global recession

continued to loom.

After a lower open and a sizable rally in afternoon trading, the three major averages sold off sharply into the close. The

Dow Jones Industrial Average

swung in a 450-point range, and then ended with a loss of 203.18 points, or 2.4%, at 8175.77. The

S&P 500

lost 27.85 points, or 3.2%, to 848.92. The

Nasdaq

was down 46.13 points, or 3%, at 1505.90.

When the new week began, financial firms, major players in the global crisis, were in focus. The

Financial Times

Web site reported that

Goldman Sachs

(GS) - Get Report

chief Lloyd Blankfein approached

Citigroup

(C) - Get Report

head Vikram Pandit about a merger. Pandit turned down the proposal, which was made in September, the report said. Goldman dropped 7.5% to $92.88, and Citi gave back 3.4% to $11.73.

Also, as the Treasury Department's $700 billion

Troubled Asset Relief Program

to buy equity stakes in troubled banks got underway, several companies announced their participation in the initiative. Among them,

KeyCorp

(KEY) - Get Report

and

Huntington Bancshares

(HBAN) - Get Report

announced they would take part in the

Treasury plan

to purchase stock in banks facing liquidity troubles.

KeyCorp shares edged down 2% to $9.92, and Huntington gained 15% to $9.17.

SunTrust

(STI) - Get Report

, meanwhile, said it would slash its dividend 30% and apply to sell stock and warrants to the government. Shares added 0.7% to $35.34.

The

Federal Reserve

was also working to shore up short-term debt markets and get companies to lend to one another. The Fed said it will give companies a rate of 1.88% for three-month, high-grade commercial paper and buy asset-backed debt for 3.88%. Three-month dollar Libor, a measure of the rate banks charge one another for large loans, ticked down to 3.51% from 3.52% Friday. The overnight Libor rate was at 1.27%.

Kenny Landgraf, president and founder of Kenjol Capital Management, said that the government's actions are welcome, but it will take time for the Fed and Treasury's impact on the crisis to be realized. He said that banks have yet to resume lending, and homeowners and the lending markets face added risks if unemployment rises.

Nevertheless, major financial institutions have benefitted from the intervention. "Morgan Stanley is still in business, and about a month ago they were on the chopping block," said Landgraf. He also pointed to

PNC's

(PNC) - Get Report

recent acquisition of

National City

( NCC) as evidence that the TARP is helping financial institutions. PNC shed 0.4% to $58.63, and National City slippped 2.4% to $2.02.

Amid speculation that there will be additional interest-rate cuts, European Central Bank chief Jean-Claude Trichet said his agency may cut rates at its Nov. 6 meeting. Expectations of a rate cut from the U.S. Fed increased ahead of its two-day meeting, which begins Tuesday.

Also making headlines was conglomerate

Loews Corp.

(L) - Get Report

, which said it will buy $1.25 billion of preferred stock in insurer

CNA Financial

(CNA) - Get Report

. Loews owns a 90% stake in CNA, which swung to a third-quarter loss because of a downturn in its investment portfolio and hurricane-related claims. Loews' stock plummeted 18% to $25.65, while CNA dropped 33% to $11.90.

The state of the U.S. automakers was once again looking precarious.

Bloomberg

reported that

General Motors

(GM) - Get Report

requested support from the Treasury Department to help it merge with

Chrysler

. GM shares lost 8.4% to $5.45.

Elsewhere on the merger front,

CenturyTel

(CTL) - Get Report

reached an agreement to acquire

Embarq

(EQ) - Get Report

in a stock swap the companies are valuing at around $11.6 billion. CenturyTel fell 13% to $25.62, and Embarq added 2.2% to $30.38.

As for

corporate earnings

, telecom-services provider

Verizon

(VZ) - Get Report

announced quarterly results that were in line with Wall Street's estimates. The stock climbed 10% to $27.61.

Looking at the day's economic data, the Census Bureau released its September new-home sales figures. The agency reported that September sales came in at an annual rate of 464,000, up from 460,000 in August. Economists were anticipating 450,000 units sold. Inventories, meanwhile, declined to 394,000 from 425,000. However, sales of new houses declined year over year, and home prices hit a four-year low.

In the realm of commodities, crude oil for December delivery lost 93 cents to settle at $63.22 a barrel. Gold climbed $12.60 to $742.90 an ounce.

Longer-dated U.S. Treasury securities were falling in price. The 10-year was down 12/32 to yield 3.73%, and the 30-year was losing 12/32, yielding 4.09%.

The dollar was continuing the wild swings seen at the end of last week, making big gains against the euro and pound but taking losses vs. the yen.

Abroad, European exchanges were mixed, as the FTSE in London edged down and the DAX in Frankfurt gained ground.

Asian markets

, such as Japan's Nikkei and Hong Kong's Hang Seng, closed on the downside.

(

Photo gallery: Trading Faces