Everything goes down

Wall Street collapse

U.S. stocks skidded on Monday as investors worried that rising mortgage defaults and credit market losses will drag on the economy and spur consumer caution this holiday season, driving U.S. government debt prices higher as risk-averse investors sought a safe haven.

The credit worries cemented expectations that the Federal Reserve will cut interest rates to bolster the economy, dragging the dollar to a two-and-a-half-year low against the yen.

All three major stock indexes fell more than 1 percent, led by declines in financial services shares, with Citigroup falling below $30 a share for the first time in more than five years.

"It's more worries about the financial crisis, and what the expectations of these big banks are," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois.

There was also some "flight-to-safety" trading, he said. "People are trying to figure out about the slowdown, and more and more people are thinking more seriously about how severe the economic slowdown is going to be."

The Dow Jones industrial average last traded 162.25 points, or 1.25 percent, at 12,818.63. The Standard & Poor's 500 Index was down 25.05 points, or 1.74 percent, at 1,415.65. The Nasdaq Composite Index was down 45.28 points, or 1.74 percent, at 2,551.32.

Selling picked up pace into the last hour of trading, pushing the Nasdaq down more than 10 percent from its 52-week closing high set on Oct. 31.

"The market seems to be in full panic mode. Another 100 points lower on the Dow Jones industrials index would not be a surprise," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

The sell-off in financial companies followed a report from Goldman Sachs saying that HSBC, Europe's biggest bank, would likely need an additional $12 billion in provisions for its U.S. subprime mortgages and home equity loans.

HSBC on Monday said it was providing up to $35 billion to support its two structured investment vehicles.

TREASURY YIELDS TUMBLE

Benchmark Treasury yields reached their lowest level in more than two years as investors fled stocks for relatively safer government bonds.

The Federal Reserve, meanwhile, said it would supply additional liquidity to the banking system ahead of the end of the year in response to heightened pressures in money markets.

The benchmark 10-year U.S. Treasury note was up 42/32, with the yield at 3.8466 percent. The 2-year U.S. Treasury note rose 7/32, with the yield at 2.9433 percent. The 30-year U.S. Treasury bond was up 83/32, with the yield at 4.2804 percent.

In currencies, expectations for more Fed rate cuts sent the dollar lower against the euro and a basket of major currencies. Investors remain cautious about fallout from the credit crunch as the approaching year end may force investors to dump assets to get their books in order.

The U.S. Dollar Index, which measures the dollar against a basket of major trading partner currencies, was down 0.34 percent at 74.848 from a previous session close of 75.106.

The euro was up 0.21 percent at $1.4866 from a previous session close of $1.4835. The dollar dropped to 107.48 yen, the lowest since June 2005, according to Reuters data. It last traded at 107.56 yen, still down 0.7 percent on the day.

"Keep an eye out for a break below 107.50/55 (yen) lows from last week, (which could) trigger another wave of carry-trade selling," Dolan, he added.

U.S. crude oil futures ended a choppy session lower as traders assessed the possibility of an OPEC output boost when the group meets next week.

U.S. light sweet crude oil fell 71 cents, or 0.72 percent, to $97.47 per barrel.

Spot gold prices were unchanged at $823.00 as the market took a breather after Friday's sharp rally.

EUROPEAN SHARES SLIP

European shares fell, led by losses in banks after Goldman Sachs analysts cut their rating on HSBC.

The FTSEurofirst 300 index of top European shares ended down 0.58 percent at 1,467.58 points.

Investors remain concerned about the spread of economic and credit woes in the United States to other parts of the world.

In Asia, Japan's broad-based TOPIX index jumped 2.1 percent or 29.65 points to end at 1,467.03, having touched a one-week high during the session. The Nikkei rose 246.44 points or 1.7 percent to 15,135.21.

A newspaper reported that the Chinese government's investment arm was likely to pick up shares in Tokyo, boosting hopes for new demand for the underperforming Japanese market.