NEW YORK (AP) - Fear has taken over on Wall Street.
The Dow Jones industrials fell 634.76 points, the first trading day since Standard & Poor's downgraded American debt. . It was the sixth-worst point decline for the Dow in the last 112 years and the worst drop since December 2008. Every stock in the Standard & Poor's 500 index declined Monday.
But the S&P downgrade wasn't the only catalyst Monday. Investors worried about the slowing U.S. economy, escalating debt problems threatening Europe and the prospect that fear in the markets would reinforce itself, as it did during the financial crisis in the fall of 2008.
"`What's rocking the market is a growth scare," said Kathleen Gaffney, co-manager of the $20 billion Loomis Sayles bond fund. "The market is under a lot of stress that really has little to do with the downgrade." Instead, Gaffney said, investors are focused on worries about another recession and "how Europe and the U.S. are going to work their way out of a high debt burden" if economic growth remains slow.
The Vix, a measure of market volatility and fear among investors, shot up 50 percent. That was its steepest rise since February 2007.
Investors desperately looked for safe places to put their money and settled on U.S. government debt -- even though it was the target of the downgrade Friday, when S&P removed the United States from its list of the lowest-risk countries.
The price of Treasurys rose sharply, and yields, which move in the opposite direction from price, plunged. The yield on the 10-year Treasury note fell to 2.34 percent from 2.57 percent Friday. That matches its low for the year, reached last week. Before last Friday, there was widespread concern that a downgrade would push yields up and increase borrowing costs for the government, businesses and consumers.
"This is largely a flight to safety," said Thomas Simons, money market economist with Jefferies & Co. "The bond market is really trading off of what's going on in the stock market." Money flowed out of stocks and into Treasurys.
Gold set a record. It rose $61.40 an ounce to settle at $1,713.20.
Crude oil, natural gas and other commodities fell sharply on worries that a weaker global economy will mean less demand. Oil fell 6.4 percent to $81.31 per barrel, its lowest price of the year.
Fear is spreading quickly through the market, said Dimitre Genov, senior portfolio manager with Artio Global Investors. "It's becoming a vicious cycle and could feed into consumers reducing their demand as well."
The Dow was down 5.5 percent a 10,809.85. The sharp drop extended Wall Street's almost uninterrupted decline since late July, when the Dow was flirting with 13,000. It fell below 11,000 for the first time since November.
The S&P 500 fell 79.92, or 6.7 percent, to 1,119.49. The Nasdaq composite index fell 174.72, or 6.9 percent, to 2,357.69.
Trading volume was the highest since September 2008 and the fourth-highest on record. A total of 9.9 billion shares traded, and about 70 stocks fell for every one that rose on the New York Stock Exchange.
Stock markets in Asia began Monday's global rout. The main stock index fell almost 4 percent in South Korea and more than 2 percent in Japan. European markets opened later and fell, too, with Germany down 5 percent and France 4.7 percent.
In the U.S., stocks fell even as Moody's, another major credit rating agency, stood by its top rating of Aaa for the United States. It said it could downgrade the U.S. if it doesn't cut its deficit, "but it is early to conclude that such measures will not be forthcoming."
Financial markets also did not appear comforted by an afternoon statement by President Barack Obama, who said Washington needs more "common sense and compromise" to tame its debt.
"Markets will rise and fall," he said. "But this is the United States of America. No matter what some agency may say, we've always been and always will be a triple-A country."
S&P, in its downgrade, criticized dysfunction in the American political system. The downgrade wasn't a total surprise but came when investors were already feeling nervous about the U.S. economy and European debt, among other problems.
Last week, the Dow Jones industrial average fell almost 700 points. That was its biggest weekly point loss since 2008, during the financial crisis. Counting Monday, the Dow has dropped in 10 of the last 12 trading days. It is down more than 1,900 points, or 15 percent, since July 21.
The Russell 2000 index of small stocks has now lost nearly 25 percent from its most recent high on April 29. A decline of 10 percent or more is considered to be a correction. And a drop of 20 percent or more is said to be the start of a bear market.
The Nasdaq and S&P 500 are both down about 18 percent since the end of April. The Dow is down 16 percent.
The last bear market for the S&P 500 ran from October 2007 until March 2009. The index lost 57 percent of its value.
Despite the slide the last two and a half weeks, the S&P 500 index, at 1,119,