NEW YORK (CNN/Money) - The Dow industrials and the Standard & Poor's 500 index carved out new five-month lows Monday, as investors bailed out of stocks amid fears about a potential war with Iraq and the continued weakness of the U.S. economy.

Tuesday brings little new economic news, although a report on January wholesale inventories is due. Economists polled by Briefing.com expect it to show a 0.2 percent rise following a 0.8 percent rise the previous month.

Quarterly earnings news is expected from AnnTaylor (ANN: Research, Estimates), Del Monte (DLM: Research, Estimates) and H.J. Heinz (HNZ: Research, Estimates).

The Dow Jones industrial average (down 171.85 to 7568.18, Charts) lost 2.2 percent, the Nasdaq composite (down 26.92 to 1278.37, Charts) lost about 2 percent, and the S&P 500 index (down 21.41 to 807.48, Charts) lost 2.6 percent.

Monday's was the Dow's worst finish since Oct. 10 when it closed at 7,533.95. The S&P 500 Monday also closed just above its Oct 10 low, which was 803.92.

Monday also marked the three-year anniversary of the Nasdaq's all-time high, but the session was far from celebratory. Instead investors got a reminder of how far stocks have fallen since the end of the bull market.

Faced with the prospect of a potential war with Iraq, which the U.S. and Britain may have to wage without the support of the divided United Nations, and a sluggish economy -- as evidenced by Friday's weak labor report -- investors ditched stocks.

"This war situation is getting out of control," said Ram Kolluri, chief investment officer at GlobalValue Investors. "Buyers are on strike. Six out of the last eight weeks have been down. The action is completely emotion-driven."

Selling spared few sectors, with telecom a notable decliner following a number of negative developments, including an appeal of an antitrust case that Verizon Communications has brought before the U.S. Supreme Court.

Everything seemed rosy on March 10, 2000, when the Nasdaq hit its closing high of 5,048.62, but a cloud of gloom hung over Wall Street Monday.

This market reaction is almost the mirror opposite of the bull market of the late '90s, Kolluri noted. The Nasdaq composite reached its all-time peak exactly three years ago today. It is down 74.7 percent since then.

"At the peak people were throwing money at anything, regardless of the fundamentals. Now you have the opposite," Kolluri added. "There are good companies and some decent bargains out there, and people are completely ignoring them with all this panic."

With a war in the Middle East seeming inevitable, oil prices rising to levels unseen since 1990, the economy shedding jobs and corporate profit growth faltering quarter after quarter, investors continued to do Monday what they have been doing for months -- slowly, but surely, getting rid of stocks.

"It's Iraq, Iraq, Iraq," said Brian Finnerty, managing director at Melhado, Flynn & Associates. "We're fighting this negative bias across the board."

The Bush administration introduced what it said was more evidence of Iraq's unwillingness to disarm in an attempt to rally wary U.N. Security Council members, ahead of a key vote. Later this week, the Security Council is likely to vote on a resolution authorizing military action by March 17 if Iraq does not disarm by then. But regardless of how the vote goes, Washington has said repeatedly that it is prepared to attack even without United Nations backing.

"Everyone's waiting now for this new deadline, with people not wanting to move until they think they know what's going to happen," Melhado, Flynn's Finnerty added. "Having said that, with so many people reluctant to move, it makes the market really vulnerable now."

Tensions also ran high at the other end of the world, where North Korea test-fired a second missile over the weekend. (For the latest international developments, go to CNN.com.)

The U.S. Supreme Court Monday agreed to hear Verizon Communications' appeal of a ruling that would make the company vulnerable to antitrust lawsuits when customers have poor or delayed access to local telephone networks.

Shares of Verizon (VZ: down $1.31 to $32.75, Research, Estimates) and BellSouth (BLS: down $0.93 to $20.07, Research, Estimates) lost around 4 percent, while another Baby Bell, Dow component SBC Communications (SBC: down $1.14 to $19.35, Research, Estimates), lost 5 percent. The selling also hit AT&T (T: down $0.71 to $16.80, Research, Estimates), another Dow stock, which lost 4 percent.

Nextel Communications (NXTL: down $0.90 to $11.26, Research, Estimates) stock fell 7 percent and was among the most actively traded on the Nasdaq composite after brokerage house RBC Capital Markets downgraded the company to "sector perform" from "outperform" and cut its stock price target to $13 from $15. The firm said greater risks lie ahead for the stock, particularly amid recent events such as Motorola's (MOT: down $0.11 to $7.90, Research, Estimates) reduction of its stake in the firm.

Shares of Concord EFS (CE: down $1.83 to $8.52, Research, Estimates), an electronic payment processor, fell 17 percent and topped the most-active list on the New York Stock Exchange on the heels of news reports that the company has put itself up for sale for as much as $6 billion and has hired Goldman Sachs to find it a buyer.

In addition, shares of Fannie Mae (FNM: down $4.35 to $58.93, Research, Estimates) and Freddie Mac (FRE: down $3.20 to $50.80, Research, Estimates) were both knocked about 6 percent lower in active trade after St. Louis Federal Reserve Bank President William Poole issued cautionary comments about the two U.S. home finance companies.

One bright spot was chipmaker Advanced Micro Devices (AMD: up $0.28 to $5.53, Research, Estimates), which saw its shares gain 5 percent in active trade after its CEO said the company is gaining share of the memory chip market from rival Intel (INTC: down $0.11 to $15.90, Research, Estimates).

Market breadth was sharply negative on light volume. On the New York Stock Exchange, three stocks fell for every one that rose on volume of 1.20 billion shares. On the Nasdaq, losers outnumbered winners by more than 11 to five as 1.09 billion shares traded.

Amid the stock market woes, bond yields continued to fall. The benchmark 10-year Treasury note rallied 24/32 of a point in price, with its yield dropping to 3.55 percent. What drove bond prices up, however, drove the dollar down against both the yen and the euro.

Oil prices reversed their recent climb, with light crude futures falling 51 cents to $37.27 a barrel. Gold gained $3.90 to $354.80 an ounce.