NEW YORK — Wall Street joined stock markets around the world in a huge selloff Friday, sending major market indexes to their lowest levels in more than five years on the belief that a punishing economic recession is at hand. A grim outlook from electronics maker Sony helped trigger the selling, and another bleak forecast from the automaker Daimler added momentum to the drop.
U.S. trading was dramatic and fractious, with the Dow Jones industrials falling more than 500 points soon after the opening bell. The blue chips followed the pattern of recent sessions, recovering ground only to fall sharply again, before ending the day with a loss of 312. All the major indexes fell more than 3 percent.
The pullback on Wall Street, while steep, wasn't as bad as some observers had feared after stocks plunged overseas in response to another round of grim corporate news. Sony's profit warning sent its shares tumbling in Japan and offered only the latest example that companies are girding for a slowing economy and a pullback among consumers worried about falling home prices and losses on their investments.
And in Germany, Daimler's stock fell sharply after the company reported lower third-quarter earnings and abandoned its 2008 profit and revenue forecast. That followed news in the U.S. late Thursday from Microsoft Corp., which issued a weaker-than-expected forecast for its fiscal second quarter, pointing to the economy; other big U.S. companies have scaled back their forecasts as they announced third-quarter earnings.
"People have been saying that we're in a recession. This is the realization," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.
It is clear that many investors are convinced the world economy is headed for a severe downturn even as governments have raced to revive credit markets on the hope that a return of more normal lending levels by banks and other financial houses will fan economic activity.
But some say the recent pullbacks have been set off by forced selling, keeping some bargain-seeking traders from entering the market.
"There's nothing new going on," said Scott Bleier, president of market advisory service CreateCapital.com. "This is all about the unwinding of massive leverage."
Bleier attributed the declines to margin calls and investors in hedge funds and mutual funds cashing out. A margin call occurs when investors are forced to sell holdings, like stock, to raise cash at the demands of brokers.
"Market participants' fear is not that the economy is slowing," he said. "The fear is there is an endless supply of things for sale, regardless of price."
Steve Gross, principal at alternative investment and advisory firm Penso Capital Markets, said most large hedge funds have already slashed their positions. Instead, he sees a lack of demand: "There are no buyers at all."
Investors were nervous going into the session after U.S. stock futures _ the bets traders place on where the market will go _ fell so sharply before Friday's opening bell that selling halts were imposed.
By the close, the Dow fell 312.30, or 3.59 percent, to 8,378.95 after falling 504 in the early going. Still, the blue chips remained above 8,000; at its recent low of Oct. 10, the Dow traded down to 7,882.51 but it hasn't finished below that level since 2003.
Broader stock indicators also fell Friday. The S&P 500 index declined 31.34, or 3.45 percent, to 876.77, and the Nasdaq composite index fell 51.88, or 3.23 percent, to 1,552.03.
Friday's finish was the lowest for the Dow since April 25, 2003, when it ended at 8,306.35. For the S&P 500, it was the lowest ending since April 11, 2003, when the index finished at 868.30. It was the Nasdaq's lowest close since a May 23, 2003, finish of 1,510.09.
The Russell 2000 index of smaller companies ended Friday down 18.80, or 3.84 percent, at 471.12.
Declining issues outpaced advancers by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to 6.45 billion shares compared with 7.05 billion shares traded Thursday.
Friday was the 79th anniversary of the day that, according to many market historians, the October 1929 stock market crash began. Selling began on Thursday, Oct. 24, and accelerated the following week on the days that have since become known as Black Monday and Black Tuesday, Oct 28 and 29.
For the week, the Dow fell 5.35 percent, the S&P 500 lost 6.78 percent and the Nasdaq fell 9.31 percent. The week's selling left the Dow down 40.9 percent from its Oct. 9, 2007, record close of 14,164.53, while the S&P 500 is off 44 percent from its peak of a year ago. The Nasdaq is down 45.7 percent.
The Dow hasn't had an up week since the week ended Sept. 12, while the S&P500 and Nasdaq last turned in a winning weekly performance the following week, which ended Sept. 19.
U.S. stock market paper losses came to about $800 billion for the week, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.
Jason Weisberg, a New York Stock Exchange trader for Seaport Securities, contends the selling has been overdone.
"Technically we're way oversold," he said. "We have these downdrafts on very light volume. But all that being said, historically speaking this is all unprecedented."
The panicky feeling ahead of the opening bell came after Japan's Nikkei stock average fell a staggering 9.60 percent. In Europe, Germany's benchmark DAX index lost 4.96 percent, France's CAC40 dropped 3.54 percent while Britain's FTSE 100 sank 5 percent after the government said its gross domestic product fell 0.5 percent in the third quarter, putting the country on the brink of recession.
Demand for U.S. Treasurys remained high as investors sought safe places to put their money. The yield on the three-month bill, regarded as the safest asset around, fell to 0.82 percent from 0.94 percent late Thursday.
There were signs that credit markets continue to thaw but are doing so more slowly amid growing economic fears. The rate on three-month loans in dollars _ a key bank-to-bank lending benchmark known as the London Interbank Offered Rate, or Libor _ fell to 3.52 percent from 3.54 percent on Thursday.
The rates have fallen steadily for 10 days as confidence in the banking industry has been helped by government rescue measures. However, the improvements were smaller Friday on concerns about the health of the global economy.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.72 from 3.66 percent late Thursday.
"We've moved from credit market concerns to economic concerns and people really don't know what the impact on the economy is going to be, they don't know the full impact. The market abhors uncertainty," said Ben Halliburton, chief investment officer of Tradition Capital Management in Summit, N.J.
Gold futures briefly fell to their lowest level in 21 months Friday as the dollar strengthened and the drop in the world's stock markets led investors to sell commodities to offset massive losses in equities. Gold regained much of what it lost later in the day though prices remain down by about 20 percent since the start of the month.
Ordinarily, gold is seen as a safe-haven investment during market upheavals.
Other commodities declined. Light, sweet crude fell $3.69 to settle at $64.15 a barrel on the New York Mercantile Exchange. The sell-off, another sign that investors fear a severe recession, came despite OPEC's announcement that it will cut production by 1.5 million barrels a day to boost sagging prices.
The dollar has risen as a safety holding despite fears about the U.S. economy. Investors appear more worried about the stability of emerging markets. That's hurting the euro, for example, because Iceland, Hungary, Ukraine and Belarus are all in talks with the International Monetary Fund to discuss possible loans. Investors are also pulling money out of countries in Latin America and Asia amid worries about vulnerable countries.
Investors had been bracing for a rocky start on Wall Street after futures contracts for the Dow and the S&P 500 fell so low they triggered "circuit breakers," which froze selling until the market's 9:30 a.m. EDT open. That slide raised the possibility that these emergency breaks intended to prevent panic selling could be triggered during the regular session _ something that hasn't happened since 1997. But the Dow's decline was well short of the 10 percent, or 1,100-point, decline that would be needed to halt trading.
The Dow Jones industrial average ended the week down 473.27, or 5.35 percent, at 8,378.95. The Standard & Poor's 500 index finished down 63.78, or 6.78 percent, at 876.77. The Nasdaq composite index ended the week down 51.88, or 3.23 percent, at 1,552.03.
The Russell 2000 index finished the week down 55.31, or 10.51 percent, at 471.12.
The Dow Jones Wilshire 5000 Composite Index _ a free-float weighted index that measures 5,000 U.S. based companies _ ended at 9,514.37, down 403.02 points, or 4.24 percent, for the week. A year ago, the index was at 15,337.70.
Associated Press writers Stevenson Jacobs and Stephen Bernard in New York, Carlos Piovano in London, Alex Kennedy in Singapore, Shino Yuasa in Tokyo and Kelly Olsen in Seoul and contributed to this report.
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