The stock market buckled Monday under the weight of a crisis in Europe and danger of recession at home. Reeling from a downgrade of American debt, the Dow Jones industrials plunged 635 points.
It was the worst day for the market since the financial crisis in the fall of 2008 and extended Wall Street's sharp decline. Stocks have lost 15 percent of their value in just 2½ weeks.
In a grim look forward, economists at Goldman Sachs peg the chances of another recession at 1 in 3, most likely in the next six to nine months.
Asian equity markets were sharply down early today as investors fearing a possible global economic slowdown continued to flee stocks.
Japan's Nikkei 225 index plunged 4.4 percent to 8,694.31 in the morning session, while Hong Kong's Hang Seng index plummeted 7.3 percent. South Korea's Kospi index plummeted 8.2 percent.
Monday was the first trading day since Standard & Poor's downgraded the United States' risk-free credit rating, and the selling started at the opening bell. The Dow dropped 250 points in minutes. For the rest of the day, investors looked for safer places for their money. With few buyers left for stocks, the market could only drift lower.
Financial markets were not comforted by an afternoon statement by President Barack Obama, who said Washington needs more "common sense and compromise" to tame its debt.
"Markets will rise and fall," he said. "But this is the United States of America. No matter what some agency may say, we've always been and always will be a triple-A country."
Seeking to demonstrate command in a volatile economic climate, Obama said he hoped the S&P decision would at least give Congress a renewed sense of urgency to tackle debt problems. He said that must be done mainly by taking on the politically difficult issues of reforming taxes and entitlement programs in the coming months.
The Dow finished the day down 5.5 percent. The point decline was the worst since Dec. 1, 2008, and the sixth-steepest ever. The average ended at 10,809.85, its first close under 11,000 since November.
Bank stocks were among the biggest losers Monday. Bank of America and Citigroup lost more than 15 percent of their value.
Spokesmen for the banks said they were well fortified against the decline in their stock.
Investors decided U.S. debt was one of the safest places to be. They also sought refuge in gold, which set a record price.
In their first opportunity to buy long-term Treasurys after S&P declared them riskier, investors paid a premium for them. The yield on 10-year Treasury bonds fell to 2.34 percent Monday from 2.56 percent Friday as investors bid prices up.
"The S&P downgrade of U.S. government debt is the least of our problems," said economist Scott Brown at Raymond James & Associates. "The bigger worry is subpar economic growth and the threat of a new recession."
The U.S. economy grew at a feeble 0.8 percent annual pace the first half of 2011, its slowest since the end of the Great Recession in June 2009.
Oil prices plunged 6 percent to the lowest price of the year Monday — $81.31 a barrel. Investors predict a weakening economy means that consumers and businesses will buy less gasoline.
In the United States, stocks fell even though Moody's, another major credit rating agency, stood by its triple A rating for the country. It said it could downgrade the nation if it did not cut its deficit, "but it is early to conclude that such measures will not be forthcoming."
Across the Atlantic, policymakers struggled to contain a debt crisis of their own. The threat of default has spread to Italy and Spain. If either of those countries failed to meet their debt payments, their banks would absorb losses on their holdings of their countries' government bonds.
"What's rocking the market is a growth scare," said Kathleen Gaffney, co-manager of the $20 billion Loomis Sayles bond fund.
She said the market is worried about how the United States and Europe will grow their way out of their debt problems.
Information from the Washington Post was used in this report.