NEW YORK – Stocks fell sharply on Friday and shattered several records along the way as blue chips suffered the largest drop since the 1930s amid increasing fears of an extended war on terrorism and further weakening of the nation's wobbling economy.
It was the most active week ever in the wake of last week's terror attack that destroyed the World Trade Center's twin towers in New York's financial district and severely damaged the Pentagon.
Investors dumped shares for the fifth straight day after President Bush prepared the nation for war on Thursday night. Wall Street has been jittery about the possible U.S. military response to the attacks.
The Dow Jones industrial average fell 140.40 points, or 1.68 percent, to end the day at 8,235.81, according to the latest data, while the Nasdaq composite fell 47.74 points, or 3.25 percent, to 1,423.19. The benchmark Standard & Poor's 500 dropped 18.74 points, or 1.9 percent, to 965.80.
"Right now, there are just falling knives everywhere,'' said Dirk van Dijk, who helps manage $4.5 billion for the C.H Dean & Associates. "Who... wants to step in front of a freight train? On Monday we did some buying. Clearly we were immature.''
The Dow plunged more than 300 points early, then staged a stunning comeback into near-positive territory — only to lose ground again on a wildly volatile trading day.
"We are outside the historic envelope. No one knows when we will bottom," said Paul Cherney, a market analyst at S&P Marketscope.
For the week, the Dow fell 14.3 percent, Nasdaq lost 16.1 percent, and S&P 500 tumbled 11.6 percent. Investors remained vexed, as the terror attack sparked national mourning, massive layoffs, recession fears and plans for U.S. retaliation. U.S. treasures and gold climbed as investors fled to safe havens.
Losers trounced winners by a 5-to-1 ratio on the New York Stock Exchange and 4-to-1 on Nasdaq. More than 1 billion shares changed hands on each of the exchanges, twice the average midday volume. The NYSE is on track to have its busiest week in history.
Friday's volatility was partly exaggerated by technical factors including the "triple witching,'' the quarterly expiration of options, index options and future contracts, the selling was clearly emotional.
Traders also point to the fact investors might be receiving margin calls — a demand that they repay money borrowed to buy stocks earlier.
General Electric offered a short-lived respite from the relentless selling after the conglomerate said it was on track to deliver double-digit earnings growth this year. The corporate icon rescued the market from a drop of as much as 5 percent after President Bush prepared the nation for war on Thursday night.
"You can't get a historical parallel. We are boxing with a ghost," said Richard Cripps, chief market strategist at Legg Mason Wood Walker. "The market is oversold, but there is always an intangible factor to stock prices and an irrationality that they can reflect. You have to let it run its course."
Wall Street left hopes for a patriotic rally in the dust when markets reopened on Monday for the first time since hijacked planes slammed into U.S. landmarks and killed thousands on Sept. 11.
Stocks also fell overseas. Japan's Nikkei stock average finished the day down 2.4 percent. Britain's FT-SE index closed with a loss of 2.7 percent, France's CAC-40 fell 2.3 percent, Germany's DAX index declined 0.6 percent.
Companies ranging from airlines and publishers to financial services firms and software makers have announced steep layoffs after the Sept. 11 attacks. The assaults paralyzed the travel industry, aggravated fears of a recession and threatened to damp consumer confidence.
"Every day there are more layoffs and more contraction," said Larry Wachtel, a market analyst at Prudential Securities. "The economy really grinded to a halt and profit projections are changing. You are pushing off economic recovery and you are pushing off profit recovery. And then there is fear."
Northwest Airlines joined other troubled airlines on Friday and cut about 10,000 people, or 19 percent, of its work force and permanently reduced its flight schedule by 20 percent. Northwest lost 56 cents at $10.45, or 5 percent.
The U.S. government rushed to provide a financial lifeline, a $15 billion bailout plan, for the faltering airline industry as industry job cuts in the United States exceeded 100,000 since the attacks on U.S. cities.
EMC Corp. fell $1.47 to $11.15. The computer storage company said it would cut 10 percent of its work force, or more than 2,000 jobs, and probably report a quarterly loss, blaming a widening recession and slowing technology spending.
ONI Systems Corp. plunged $3.38 to $4.99. The optical communications gear provider said its results for the remainder of the year would fall well short of expectations and it will post charges due to the deteriorating global telecommunications market.
U.S. mutual funds are on course to post their worst year ever, according to data that goes back to 1960 from fund research firm Lipper Inc. The average diversified U.S. stock fund is down 25.7 percent year to date through Thursday, exceeding a 24.9 percent drop for full-year 1974, Lipper said.
"There's margin calls, and there's not only redemptions, but also end of fiscal year tax-loss selling,'' said Richard Babson, president of Babson-United Investment Advisors, which manages $1.8 billion. ``But I expect the volatility to continue. There are some folks, even myself, who have money to put to work, but I waiting for things to stabilize.''
Earnings for companies in the S&P 500 are expected to fall 16.1 percent in the third quarter against a previous forecast for a drop of 14.4 percent before the attack, says market tracker Thomson Financial/First Call.
Palm Inc. fell 38 cents to $1.77. The company pulled the plug on plans to launch this year a highly anticipated wireless handheld computer, derailing any momentum gained after it delivered first-quarter results that met lowered expectations.
CVS Corp. fell $3.10 to $32.25. The drug store chain lowered its quarterly earnings outlook, saying its sales are expected to be hurt as consumer confidence wanes in the wake of the attacks.
Reuters and The Associated Press contributed to this report.