Dow unable to hold gains

Another late-day swoon on Wall Street pushed stocks down again Monday, as investors continued to dump the kinds of risky shares they had embraced so fervently in recent years -- particularly real-estate-related issues and smaller stocks.

Yet some analysts held out hope for a rally this week, if only because stocks have been falling for most of the last week, and they rarely head straight down.

Buyers got a rally going early Monday, driving the Dow up as much as 73 points at the outset of trading. But the bulls couldn’t sustain it.

Blue-chip stocks traded in a narrow range the rest of the session, until sliding in the final half hour. The Dow Jones industrial average ended down 63.69 points, or 0.5%, at 12,050.41. The Dow tumbled 4.2% last week.

Smaller stocks ratcheted lower throughout the session after rising initially. The Russell 2,000 small-stock index gave up 15.38 points, or 2%, to 760.06. The index slumped 6.2% last week.

Losers swamped winners by nearly 5 to 1 on the Big Board.

The Standard & Poor’s 500-stock index was off 13.05 points, or 0.9%, to 1,374.12. The Nasdaq composite dropped 27.32 points, or 1.2%, to 2,340.68.

Analysts said the second consecutive session of late-afternoon selling was a bearish sign indicating a lack of investor confidence.

“What we have had is a big change in psychology from [investors] not worrying about anything to looking for things to worry about,” said Phil Roth, chief technical market analyst at brokerage Miller Tabak & Co. in New York.

Wall Street’s struggle followed another day of losses in Asian and European stocks.

The markets’ slump began a week ago with a sharp sell-off in Chinese shares that reverberated worldwide. China’s slide caused concerns that had been simmering in the United States to boil over -- specifically, fear that the U.S. economy was at risk of falling into recession this year instead of experiencing a so-called soft landing.

Rising mortgage defaults by sub-prime borrowers -- people with poor credit histories or no histories -- have deepened concerns about the housing market and its effect on the economy.

The Dow plummeted 416 points, or 3.3%, last Tuesday, its worst loss in nearly four years. It has been mostly downhill for markets worldwide since then.

Mortgage lenders’ shares took another beating Monday, as did stocks of real estate investment trusts, which own commercial properties.

Sub-prime lender New Century Financial plunged $10.09 to $4.56. Countrywide Financial lost $1.82 to $35.20 and NovaStar Financial slid $2.96 to $4.28.

A Bloomberg News index of 134 REIT shares dived 3.7%. It fell 5.6% last week.

There was some mixed news on the U.S. economy Monday. An index that tracks the services sector of the economy showed growth last month, but at a slower pace than in January.

Several Federal Reserve officials gave upbeat assessments of the economy. St. Louis Fed President William Poole said “we do not see a recession on the horizon.”

Investors are trying to assess whether stocks’ sudden slide is just a long overdue “correction” or the start of something worse.

“You can say it’s just a nasty correction or the start of a bear market,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, N.Y. “Either way, the stock and bond markets are sending a strong and unambiguous signal that something may have gone wrong for the economy.”

Treasury bond yields have tumbled as stocks have fallen and some investors have looked for a haven. On Monday the 10-year T-note yield was unchanged at 4.50%.

Not everyone is downbeat.

A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, said Monday that he was buying stocks of large U.S. companies with international operations. He said he thinks they’ve become bargains.

Although the U.S. economy may struggle, he said, many foreign economies appear to be solid. Moore said big-name stocks may be close to turning the corner, and that the overall market may be close to at least a short-term rally.

“I wouldn’t be surprised if the markets get their legs under them in the next couple of days,” he said.

Among the day’s market highlights:

* Gains in Coca-Cola and IBM helped support the Dow. Coke gained 40 cents to $46.29; IBM added 91 cents to $91.81.

* Brokerage stocks slid with other financial issues. Merrill Lynch lost $2.19 to $79.97; Goldman Sachs fell $5.67 to $190.

* Commodity-related shares were broadly lower as raw material prices declined on economic worries. Alcan slid $1.72 to $50.10; gold miner Agnico-Eagle gave up 96 cents to $35.65.

walter.hamilton@latimes.com

tom.petruno@latimes.com

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Hamilton reported from New York and Petruno from Los Angeles.