Dow falls 635 points in 6th-worst loss

Updated: 3:35 a.m. ET

The Great Sell-Off of 2011 became the Great Rout of 2011 on Monday as worries about European debt problems and the impact of Standard & Poor's downgrade of U.S. debt on domestic and global growth combined to  push stocks to their biggest one-day losses since December 2008.

The Dow Jones Industrial Average ($INDU) suffered a loss of 635 points, or 5.5%, to 10,810, its sixth-worst point loss ever. And that was actually a decent performance, relatively speaking.

The Standard & Poor's 500 Index ($INX) was off 6.7%, and the Nasdaq Composite Index ($COMPX) fell nearly 7%. Stocks in Asian and Europe also slumped.

But stocks look to open higher on Tuesday after stocks in Asia bounced rebounded from sharp low. European stock markets opened higher. Tom McClellan of the McClellan Market Report sees a short, intense rebound -- and then more selling into an October bottom.

Article continues below.Futures trading suggests the Dow will open 100 points or more higher, with the S&P 500 up at least 1.5% higher and the Nasdaq-100 Index ($NDX.X) up 1.4%. The Nasdaq-100 tracks the largest Nasdaq stocks.

The rebound was quite pronounced in Japan. The Nikkei 225 Index ($JP:N225) was down as many as 441 points in the mid-morning on Tuesday. Then, a pronounced rally in the afternoon trimmed the decline to just 153 points, or 1.7%. Hong Kong's Hang Seng Index was off as much as 7.9%, but the loss was cut to 2.2% just before the close.

Gold (-GC) for December delivery jumped to as high as $1,771.73 an ounce but fell back to $1,741.80, up $28.60. After falling to as low as $75.71, crude oil (-CL) was down just 84 cents to $80.47 in electronic trading.

Downgrade and Europe batter stocks on Monday
Monday's sell-off was prompted by S&P's downgrade late Friday and continued worries that Europe's debt crisis was spinning out of control. The loss was very broad, with very few stocks showing gains.

More than 900 stocks, in fact, hit 52-week lows today, according to data from Barchart.com. They include JPMorgan Chase (JPM), Lowe's (LOW), Merck (MRK), Transocean (RIG) and teen retailer Urban Outfitters (URBN). 

Tuesday will be dominated by market reaction to the Federal Reserve policy statement, due at 2:15 p.m. ET, as well as the hangover from the horrible selloffs of today and Thursday.

The big earnings report will come after the close from Walt Disney (DIS). Disney shares were off 6.1% to $33.03 today. The company is expected to report earnings of 73 cents a share for its fiscal-third quarter, up from 67 cents a year ago. Revenue is estimated at $10.45 billion, up from $10 billion a year ago.

China will be reporting on its consumer price index, industrial production and retail sales.

The Dow falls below 11,000
Since safety was the only game around on Monday, the Dow was pummeled repeatedly into that 635-point loss, its first close below 11,000 since Oct. 8, 2010. The index has fallen 1,915 points since July 22. The 5.6% percentage decline was the 48th-worst for the index ever and largest since Dec. 1, 2008.

The S&P 500 was off 80 points to 1,119. The Nasdaq was off 175 points to 2,358.

Volume was more than 2 billion shares on Nasdaq and 1.3 billion shares on the New York Stock Exchange. Decliners were ahead of gainers 50-to-1 on the NYSE and 12.5-to-1 on Nasdaq.

The situation was serious enough that many investors were buying insurance against further drops. The CBOE Volatility Index ($VIX) was up 50% to 48, its highest level since April 2009.

"Not only is the economy not growing as most would like, but there is a concern that fiscal and monetary authorities are powerless to do more for the economy," said Michael Pond, co-head of interest-rate strategy for British bank Barclays (BCS).
 
Meanwhile, S&P said it was downgrading the debt of Fannie Mae (FNMA) and Freddie Mac (FMCC), the big providers of mortgage capital, and other U.S. agencies.

Energy prices -- New York close
			Mon.			Fri.			Month chg.			YTD chg.
Crude oil (-CL)			$81.51			$86.88			-14.83%			-10.80%
(per barrel)
Heating oil (-HO)			$2.8657			$2.9417			-7.44%			12.66%
(per gallon)
Natural gas (-NG)			$3.9040			$3.9410			-5.81%			-11.37%
(per mil. BTU)
Unleaded gasoline (-RB)			$2.7472			$2.8052			-10.16%			11.98%
(per gallon)
Brent crude			$103.74			$109.37			-11.14%			9.49%
(per barrel)
Retail gasoline			$3.6630			$3.6730			-1.27%			19.24%
(per gallon; AAA)

Gold soars; Treasury yields drop
What investors really, really wanted today was safety, especially in light of increasing evidence that the U.S. and global economies are slowing. 

So, they bought Treasury securities, the very obligations that S&P downgraded from AAA to AA+. The 10-year Treasury yield fell to to 2.339% from Friday's 2.558%.

And, of course, they wanted gold. Gold topped $1,700 for the first time, hitting as high as $1,723.40 an ounce. It settled at $1,713.20 in New York this afternoon but popped right back up to $1,719.60.

Silver (-SI) settled up $1.17 an ounce to $39.38 an ounce and fell back to $39.045 in electronic trading. Copper (-HG) was off 15.6 cents to $3.9615 a pound.

Crude oil settled down $5.37, or 6.2%, to $81.31 a barrel, its lowest level since November. It was at $81.08 after hours. Brent crude was off $3.43, or 3.1%, to $103.78.  Energy shares slumped. The Energy Select Sector SPDR (XLE) exchange-traded fund was down 6.7% to $63.49. The ETF tracks the energy sector of the S&P 500.

Europe's problems may be more serious
While Americans can be excused for thinking the S&P downgrade was the big event, the European debt crisis was more dangerous.

That's because the European Central Bank has been forced for the first time to prop up the debt of Italy and Spain, two of its biggest member nations. Italy's and Spain's bonds have been under attack from speculators who aren't convinced either nation can keep current on their debts.

As a result, Germany's Dax Index ($DE:DAX) was off 5% to 5,923 on Monday. Britain's FTSE-100 Index ($GB:UKX) was off 3.4% to 5,069.

All 30 Dow stocks are lower
For much of Monday, Procter & Gamble (PG), the classic consumer-staples stock, was alone among the 30 Dow  stocks to show a gain. But shares were off 2.2% to $59.29. 

The company, which beat Street estimates for fiscal-fourth-quarte​r results on Friday, sells products that people buy regardless of the state of the economy -- soap, detergents, cleaning supplies and the like. 

Not even gold stocks were spared. Newmont Mining (NEM), one of the largest producers of gold, was higher for most of the day but closed down 0.5% to $54.13. It was third-best among S&P 500 stocks.

O'Reilly Automotive (ORLY) was the best Nasdaq-100 performer, but it was down 1.4% to $57.51. The index was off 134 points, or 3.6% to 2,116.

Apple (AAPL), down 5.5% to $353.21, contributed 17 points to the Nasdaq-100's decline.  Apple and six other stocks -- Oracle (ORCL), Microsoft (MSFT), Google (GOOG), Qualcomm (QCOM), Cisco Systems (CSCO) and Amazon.com (AMZN) -- combined to subtract 59 points from the index. (Microsoft publishes MSN Money.)

Why Bank of America tanked
Bank of America was the biggest loser among Dow and S&P 500 stocks, down 20.3% to $6.51. Investors worried the banking giant won't be able to handle all the problems created by its mortgage business. The selling accelerated after a big hedge-fund manager sold out his stake.

It's not clear if the collapse today of Bank of America's stock price means the government may be forced to extend assistance again. Most of its problems are mortgage-related and directly the result of its disastrous 2008 acquisition of Countrywide Financial.

It was hit with two bits of bad news today: American International Group (AIG) sued the company for more than $10 billion over what it called a "massive fraud" on mortgage debt, deepening the litigation morass facing the largest U.S. bank.

AIG said it expects to pursue other litigation to recover losses from counterparties that "sought to profit at our expense." Taxpayers still own 77% of AIG, which received $182.3 billion of government bailouts.

The other was that hedge-fund manager David Tepper, who won big in 2009 betting on battered bank shares, now is bailing out on some battered bank shares.

CNBC said Tepper’s Appaloosa Management sold its position in the banking company.

Short hits from the markets -- New York close
			Mon.			Fri.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.020%			0.010%			-77.78%			-83.33%
5-year Treasury note			1.092%			1.253%			-20.47%			-45.83%
10-year Treasury note			2.339%			2.558%			-16.61%			-29.23%
30-year Treasury bond			3.663%			3.823%			-11.35%			-16.02%
Currencies
U.S. Dollar Index			74.938			74.802			1.22%			-5.49%
British pound			1.6324			1.6466			-0.67%			4.60%
(in U.S. $)
U.S. $ in pounds			£0.613			£0.607			0.67%			-4.40%
Euro in dollars			$1.42			$1.44			-1.60%			5.94%
(in U.S. $)
U.S. $ in euros			€ 0.705			€ 0.696			1.63%			-5.61%
U.S. $ in yen			77.81			78.15			1.00%			-4.37%
U.S. $ in Chinese			6.43			6.44			-0.43%			-2.78%
yuan
Canada dollar			$1.007			$1.019			-3.80%			0.40%
(in U.S. $)
U.S. dollar			$0.993			$0.982			3.87%			-0.47%
(in Canadian $)
Commodities
Gold (-GC)			$1,713.20			$1,651.80			5.21%			20.53%
(per troy ounce)
Copper (-HG)			$3.962			$4.117			-11.56%			-10.92%
(per pound)
Silver (-SI)			$39.3800			$38.2110			-1.81%			27.29%
(per troy ounce)
Wheat (-ZW)			$6.5650			$6.7900			-2.38%			-17.34%
(per bushel)
Corn (-ZC)			$6.7525			6.93			1.47%			8.47%
(per bushel)
Cotton			$0.9901			1.0148			-3.01%			-31.63%
(per pound)
Coffee			$2.3420			2.38			-2.23%			-2.62%
(per pound)
Crude oil (-CL)			$81.31			$86.88			-15.04%			-11.02%
(per barrel)