Updated from 4:06 p.m. EST
Wall Street fell sharply Tuesday as a weaker-than-expected report on the service sector of the economy extended the previous session's losses and stoked fresh concerns about a recession hitting the U.S.
Dow Jones Industrial Average
plunged 370.03 points, or 2.93%, to 12,265.13, pressured by declines of 4.8% or more in
sank 44.18 points, or 3.2%, to 1336.64, its worst decline in a year. The
slid 73.28 points, or 3.08%, to 2309.57, following selloffs in
The financial sector again weighed on stock indices. The Amex Securities Broker/Dealer Index dropped 5.3%, the NYSE Financial Sector Index slumped 4.3% and the Nasdaq Financial 100 Index fell 3.7%.
Breadth remained negative. About 3.92 billion shares changed hands on the
New York Stock Exchange
, and volume on the Nasdaq reached 2.42 billion shares. Losers beat winners 4 to 1.
"Many worry that we are headed for a bear market after equities recently declined more than 16% from the peak and would have likely fallen more than 20% from the peak if the
Federal Reserve had not lowered rates between meetings," said Bill Stone, chief investment strategist with PNC Wealth Management.
Stocks started on the wrong foot following the early release of the Institute for Supply Management's nonmanufacturing index for January, which came in at a reading of 41.9, signaling a downturn in activity. Economists had expected the index to dip to 53.0 from 54.4 in December.
"Obviously, this ISM number is not good news," said Peter Cardillo, chief market economist with Avalon Partners. "Every single component of the index was down, indicating contraction. One report doesn't constitute a trend, but it's certainly one more piece of information that indicates the economy has slowed and is slowing."
Ian Shepherdson, chief economist with High Frequency Economics, noted that the latest ISM services index is the worst since the survey began in October 2001. "The low for the business activity index in the recession of 2001 was 47.9, so it is very tempting to see this survey as evidence that recession is unavoidable," said Shepherdson.
Last week, the ISM said its manufacturing index surprisingly rose to 50.7 during the first month of the year from 48.4 in December. Readings above 50 indicate that manufacturing activity is expanding, and at the time was a welcome sign to those concerned over recession prospects.
Following the services index data, U.S. Treasury prices rallied. The 10-year note was up 22/32 in price, yielding 3.56%. The 30-year bond was rising 31/32 in price to yield 4.32%.
"There will likely be more bad economic news to come as the Fed's medicine will take time to work," said Stone. "But there are some early signs of healing. Lower rates are driving mortgage refinancing which should help consumption and might eventually take the housing market off life support. In addition, the steepening yield curve should help the ailing financial sector."
were off 1.2% to $28.98 after Banc of America Securities cut its rating for the Internet search giant to neutral from buy.
announced that it had made hostile bid for Yahoo!, one that pushed the stock higher by 53% over the last two sessions. BofA said the deal will most likely face significant regulatory hurdles if approved, which would delay the closing of the acquisition.
Earnings were also in focus. After the previous close,
reported a fiscal second-quarter profit that was unchanged from a year ago, falling a penny short of estimates. Still, the stock finished up 0.6% at $20.08.
Restaurant chain operator
also reported, beating the Thomson First Call estimate for the fourth quarter by 2 cents thanks to strong overseas sales. Yum!'s 2008 outlook was slightly below estimates, though, and shares ended down 2.9% to $34.76.
Before the new session began,
reported a 54% decline in fiscal first-quarter earnings but still beat estimates.
, meanwhile, said fourth-quarter profit jumped 72% from last year to beat expectations.
Tyco shed 0.7% to $40.30, while Whirlpool jumped 10.3% to $90.
Following the end of trading, Dow component
were posting quarterly results.
Commodity prices finished lower. Crude oil fell $1.61 to close at $88.41 a barrel, and gold futures slipped $19.10 to $890.30 an ounce.
Overseas markets were uniformly lower. Hong Kong's Hang Seng fell 0.9%, and Japan's Nikkei 225 eased 0.8%. Among European bourses, the Paris CAC 40 decreased 4%, and both the London FTSE 100 and Germany's Xetra Dax slipped 2.6%.