The Dow fell below 11,000 and investors poured into Treasurys in the first trading day after Standard & Poor's downgraded American debt.
The Dow Jones industrial average fell 547 points, or 4.8 percent, to 10,897 in afternoon trading. It was the first time the index fell below 11,000 since November.
Treasury prices rose -- despite S&P's assessment that they are a riskier investment than the debt of some other countries like Canada and France. Investors still view Treasurys as one of the world's few safe havens from turmoil in other financial markets like stocks or commodities, analysts said.
"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." He said the stock market now reflects the expectation of slower growth partly due to lower business and consumer confidence because of the S&P downgrade.
The yield on the 10-year Treasury note fell to 2.33 percent from 2.57 percent late Friday. A bond's yield drops when its price rises. The 10-year note's yield fell as low as 2.06 percent in 2008.
The S&P 500 fell 73, or 6.1 percent, to 1,127. The Nasdaq fell 155, or 6.1 percent, to 2,378.
Monday was the first chance for global investors to respond to S&P's announcement late Friday that it was reducing its credit rating for long-term U.S. government debt by one notch, from AAA, the highest rating, to AA+.
The move wasn't a total surprise but came when investors were already feeling nervous about a weak U.S. economy, European debt problems and Japan's recovery from its March earthquake.
Fresh memories of the financial crisis three years ago are also driving investors away from risky investments and into what's considered safer.
"Fear of a repeat of 2008 is what's really driving investments," said Gary Schlossberg, senior economist with Wells Capital Management.
Last week, the Dow Jones industrial average fell almost 700 points. That was its biggest point loss since October 2008, during the financial crisis. The Dow has dropped in nine of the last 11 trading days.
The S&P 500 is already down 11 percent so far in August. If it stays down just that much, it would be the worst month for the index since October 2008.
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.
Crude oil, natural gas and other commodities fell on worries that a weaker global economy will mean less demand. Oil fell $3.47 to $83.41 per barrel.
Gold, considered to be a safe investment, rose more than $70 per ounce, to $1,721. Monday was the first time gold was above $1,700 although after adjusting for inflation, its price remains below its 1980 record. At that time an ounce cost about $2,400 in today's dollars.
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Q: Associated Press (AP), New York, 08.08.2011