Stocks start fourth quarter with a plunge as economic fears resurge

Oct. 3, 2011 2:08 PM PT

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

It’s a new quarter on Wall Street, but not a new mind-set: Nervous investors worldwide kicked off the final three months of the year Monday by dumping stocks and fleeing once again for the classic haven of Treasury bonds, as fears over the global economy resurged.

In a potentially ominous sign, the Standard & Poor’s 500 index closed below the 1,120 mark, which is where it had bounced three times since early August. The S&P sank 32.19 points, or 2.8%, to end at 1,099.23, a new 52-week low.

The Dow industrials slumped 258.08 points, or 2.4%, to 10,655.30, also a 52-week low, after diving 12% in the third quarter.

Despite data Monday showing an uptick in U.S. manufacturing activity in September and strong car sales for the month, those reports were good only for a modest rally at the beginning of trading, before sellers took control.

“Everything has a negative bias now,” said Andy Brooks, a veteran stock trader at T. Rowe Price Group in Baltimore. ‘Where’s the glass-half-full crowd?’

Stocks had fallen in most Asian markets overnight, and the trend continued in Europe after Greece said it wouldn’t meet targets for reducing its budget deficit in 2011 or 2012, despite a vicious austerity campaign to cut spending.

That raised once again the prospect of a Greek bond default, even though many analysts believe the rest of the Eurozone will pony up money Greece is expecting this month to stave off catastrophe.

Battered European stock markets were mostly down between 1% and 2.3% for the day, after rebounding last week. The euro fell 1.6% to an eight-month low of $1.318. Bank stocks led market losses in Europe and in the U.S., with Bank of America diving 9.6% to $5.53, a 2-year low.

Investors also have become fearful that China’s economy could slow more than expected. A gauge of Chinese manufacturing activity improved slightly in September, but the Shanghai composite stock index (charted at left) fell to a 2 1/2-year low Monday.

Concerns about China helped drive prices of many commodities down for a second session. U.S. crude oil futures dropped $1.59 to $77.61 a barrel, the lowest since September 2010 -- which at least may offer consumers some relief at the pump.

But gold bounced, as some buyers moved in after the metal tumbled 11% in September. Near-term gold futures rose $35.60 to $1,656.00 an ounce.

With equity markets sliding anew, some investors and traders looking for a place to hide poured more cash into U.S. Treasury bonds, driving market yields down.

The 10-year T-note yield, a benchmark for mortgage rates, sank to 1.75%, down from 1.92% on Friday and near the recent generational low of 1.72% reached on Sept. 22. The renewed slide in Treasury yields may give homeowners who can refinance their mortgages a second chance to lock in record-low rates.

Although Treasury yields at these levels offer little in the way of interest income, many buyers are simply focused on protecting their principal against the possibility of things getting much worse in the global economy, analysts say.

The European government-debt situation “does not look good, and we’re trading off that story,” said Bill Larkin, a bond manager at Cabot Money Management in Salem, Mass.

What’s more, the Federal Reserve on Monday kicked off its program of selling shorter-term Treasury issues to buy longer-term Treasuries, hoping to pull those interest rates even lower. The Fed bought $2.5 billion of bonds maturing between 2036 and 2041.

‘Occupy Wall Street’ protest movement gains momentum

Manufacturing and construction spending improved in September

Toyota and Honda sales fall in September but most rivals gain

-- Tom Petruno