US stocks slump

Wall Street suffered one of its worst losses of 2007 today, leading a global stock market plunge as investors succumbed to months of worry about the mortgage and corporate lending markets.

The Dow Jones industrials closed down more than 310 points after earlier diving nearly 450.

Investors who for months had been able to largely shrug off discomfort about sub-prime mortgage problems and a more difficult environment for corporate borrowing finally decided it was time to sell after the Commerce Department issued another disappointing home sales report.

Feeding the plunge were concerns that higher corporate borrowing costs would curb the rapid pace of takeovers that had driven stocks higher this year. Investors also feared the sluggish environment for home sales and continued defaults in subprime loans would spur debt defaults and weigh on corporate earnings.

While stocks plummeted, investors poured money into the safe haven of the bond market. The soaring price of Treasury bonds pulled yields lower, and the rate on the 10-year note plunged to 4.79% from late Wednesday's 4.90%.

"Worries that have been out there for the past couple of years are coming to a head right now," said investment strategist Edward Yardeni, president of Yardeni Research Inc. "It's show time."

Today's trading was the latest and most extreme in a series of frenetic sessions over the past month - many also accompanied by triple-digit swings in the Dow - as investors sold on worries about the subprime fallout or bought on optimism that there would not be any widespread problems caused by mortgage failures.

Many analysts have described the back-and-forth trading as overwrought and based more on gut emotion than careful consideration of market and economic fundamentals. That was their feeling again today.

"The rally in bonds at this point looks a little bit overdone," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. "If you're going to park money temporarily then cash I think is the way to be but I think that we're going to form a bottom. I think people are going to be legging it back into the market."

The Dow plunged 311.50 or 2.26%, to 13,473.57 after falling 449.77 in earlier trading. The close was its worst since the 416.02 it lost on February 27, when a drop in the Shanghai stock market rattled world exchanges.

Broader market indicators also slid. The Nasdaq composite index tumbled 48.83, or 1.84%, to 2,599.34, while the Standard & Poor's 500 skidded 35.32, or 2.33%, to 1,482.77.

The declines triggered a global sell-off in stocks, causing minor losses in Europe to accelerate rapidly along with the Dow's drop. The FTSE 100 closed down 3.15%, Germany's DAX index dropped 2.39%, and France's CAC-40 fell 2.78%.

Markets closed in Asia before the rout got under way.