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Dejected American investors sent stocks plunging yesterday, hurtling the Dow Jones industrials down more than 340 points after retailers and the Government added to a mountain of bad economic news and devastated hopes for a late-year recovery.
The market was already nervous as it waited for the Government to release its August employment report.
So news from the major US retailers that shoppers curtailed their spending last month due to higher petrol and food prices came as a heavy blow.
Wal-Mart Stores, the world's largest retailer, beat expectations because of its big discounts, but many teen retailers and luxury chains did poorly, a sign that consumers are spending mostly on essentials and putting discretionary buying on hold.
Meanwhile, the Labour Department said new applications for unemployment insurance rose by 15,000 last week from the previous week.
That broadly missed expectations for a fourth-straight week of declines, heightening worries that the average American - already feeling the effects of the weak housing market - will have even less to spend.
Furthermore, if the job market keeps deteriorating, it is tough for Wall St to see a rebound in sight for the economy's biggest culprit: the tumbling housing market.
"You have to have a pay cheque to pay that mortgage," said Craig Peckham, market strategist at Jefferies & Co.
Yesterday's numbers were a sign that despite some upbeat reports over the past month, the economy remains deeply troubled. Economists were predicting the eighth straight monthly payrolls drop, and a rise in the unemployment rate.
The market was so disheartened that it showed little reaction when the Institute for Supply Management said the service sector grew unexpectedly in August for the first time in three months.
The Dow fell 344.65, or 2.99 per cent, to 11,188.23. It was the worst drop for the blue-chip index since June 26, when it fell more than 358 points.
The Standard & Poor's 500 index fell 38.15, or 2.99 per cent, to 1236.83, and the Nasdaq index dropped 74.69, or 3.20 per cent, to 2259.04. All three indexes moved back into bear market territory, defined as a 20 per cent drop from a recent peak.
Not even another drop in the price of oil could console investors. Light sweet crude fell US$1.46 to US$107.89 a barrel. Gold prices also slid.
- AP
