NEW YORK (AP) _ The numbers look terrible: The Dow Jones industrials down more than 400 points. The Nasdaq composite index off nearly 100.
Traders and investors who gave the stock market its worst day since the Sept. 11, 2001, terror attacks on Tuesday decided it was time to bail amid signs that the U.S. economy might be headed for recession and that the Chinese government will clamp down on its runaway growth.
But market analysts say Tuesday's retreat, after a huge rally that stretched back to October, was a long time coming. Any market that's seen an advance that carried the Dow to 31 new closing highs can expect to pull back, even sharply.
``It's my belief that the economy is going to be fine,'' said Ed Keon, chief investment strategist with Prudential Equity Group in New York. ``We've just fallen back to where we were in the latter part of 2006. Markets go through these corrective processes time to time, and you can't say exactly when they're going to occur. Today was our day.''
Some investors were equally unfazed.
Edwin Dean, a retired economist for the federal government, agreed that one bad day for the market is no reason for the average investor to panic.
``Do I think it's going to stay down this low for a long time? No, I don't,'' said 73-year-old Dean. ``I won't be calling my mutual fund company tomorrow and saying, 'Sell half of what we have in equities.'''
The decline was nonetheless explosive, sending the Dow briefly down more than 546 points during afternoon trading. It was sparked by a sudden 9 percent slide in Chinese stocks, a report that U.S. durable goods orders fell in January by the largest amount in three months, and a warning by former Federal Reserve Chairman Alan Greenspan that a recession isn't out of the question in the United States.
The housing market also looked pretty dismal Tuesday after a Standard & Poor's index showed single-family home prices across the nation were flat in December. And a report from the National Association of Realtors said existing home sales climbed in January by the largest amount in two years, but median home prices fell for the sixth straight month and there's still a huge overhang of unsold homes.
The Dow closed down 416.02, or 3.29 percent, at 12,216.24, after falling as much as 546.02, or 4.3 percent, to 12,086.06. Because the worst of the plunge happened after 2:30 p.m., the New York Stock Exchange's trading limits, designed to halt such precipitous moves, were not activated.
The swiftness of the decline was attributed to computer glitches that kept some trades from being immediately reflected in the index of 30 blue chip stocks.
It was the Dow's largest point decline since Sept. 17, 2001, the first trading day after the terror attacks, when the blue chips fell 684.81, or 7.13 percent. In percentage terms, it was the biggest decline since March 24, 2003, when the index fell 3.6 percent as investors started getting rattled as U.S. casualties mounted in the early days after the invasion of Iraq.
The broader Standard & Poor's 500 index fell 50.33, or 3.47 percent, Tuesday to 1,399.04, and the tech-dominated Nasdaq composite index was off 96.66, or 3.86 percent, at 2,407.86.
With the drop, all three indexes have turned negative for the year.
The drop hit every sector across the market. Riskier issues such as small-cap and technology stocks suffered some of the biggest declines, but big industrial companies, those that are often hurt the most in an economic downturn, also were pummeled, with raw materials producers among the hardest hit.
The decline in U.S. stocks was part of a sweeping worldwide drop that began with the Shanghai market's 8.8 percent plunge from recent record highs. Chinese investors rushed to take profits when concerns arose that the Chinese government may take measures to cool down its rapidly expanding economy.
Stock markets in Malaysia, Great Britain, Germany and France all fell more than 2 percent.
``Corrections usually happen because of a catalyst, and this may be it,'' said Ed Peters, chief investment officer at PanAgora Asset Management. ``The move in China was a surprise, and when a major market has a shock it ripples through the rest of the market. With all the trade that goes on with China, there tends to be a knee-jerk reaction with that kind of drop.''
Even as U.S. markets rallied in late 2006 and early 2007, investors have been walking a narrow line, worried about an economic slowdown but also hoping that the Federal Reserve would begin cutting rates. But as they sold stocks lower Tuesday, the prospect of lower rates didn't seem to alleviate their concerns.
That might support the idea that the market was due for a consolidation, and that investors found their motivation in China and the day's economic data.
Bob Doll, BlackRock's global chief investment officer of equities, said, ``We went the longest period of time without a 2 percent pullback in the Dow in 50 years.''
The anxiety isn't expected to dissipate soon. On Wednesday, investors will be closely watching the government's gross domestic product report; analysts predict the Commerce Department will revise the GDP annual growth rate down to 2.3 percent for the fourth quarter from a previous estimate of 3.5 percent, but investors were bracing Tuesday for an even sharper decline.