Dow plunges below 8,000 - 1st time since '03
Major indexes close sharply lower. Fears grow about economy and auto industry.
NEW YORK (CNNMoney.com) -- Stocks fell hard on Wednesday, with the Dow closing below 8,000 for the first time since March 2003, as ongoing anxiety about the economy and uncertainty about the future of the auto industry weighed on the market.
The Dow Jones industrial average (INDU) shed more than 400 points to close 5% lower. All 30 Dow components lost ground.
The Standard & Poor's 500 (SPX) index slid 6% to its lowest level since March 2003. And the Nasdaq composite (COMP) lost 6.5% to settle at its lowest point since April 2003.
Stocks languished for most of the day, with the selloff accelerating near the close of trade. Wednesday's dramatic retreat erases gains made in the previous session.
"The market is fearful of the fallout from the credit crisis and the global economic slowdown," said Todd Salamone, market strategist at Schaeffer's Investment Research.
Those fears were writ large in the plight of the nation's automakers. Investors are grappling with a possible bankruptcy in the automotive industry, something analysts say could have dire implications for the broader economy, as a second day of congressional hearings on the matter ended without resolution.
Shares of General Motors (GM, Fortune 500), the worst off of Detroit's Big Three, fell 10% while Ford's (F, Fortune 500) stock tumbled 25%.
"The crisis of confidence is back on the front page," said said Todd Morgan, senior managing director of Bel Air Investment Advisors, a Los Angeles-based firm with nearly $6 billion in assets under management. "You need some positive catalyst, something, to change the attitude of investors [and] the auto debate is hurting confidence."
Markets were also impacted ahead of Friday's monthly options expiration, which can cause increased volatility in the underlying equities.
At the same time, weak readings on the nation's housing market and a sharp decline in consumer prices reflected the challenges facing the economy and drove down shares of financial services firms.
Shares of banking giant Citigroup (C, Fortune 500) were down 23% after hitting a session low below $7 a share. Bank of America (BAC, Fortune 500) fell 14% and JPMorgan (JPM, Fortune 500) was down about 12%.
Banks often bear the brunt of downbeat economic data as investors fear they will be forced to take more losses on the illiquid assets besmirching their balance sheets.
Also on Wednesday, the Federal Reserve released minutes from its most recent meeting that showed the central bank has significantly lowered its outlook for economic activity this year and next. It also signaled that more interest rate cuts may be needed to prevent further damage to the battered economy.
Wall Street managed to hold gains Tuesday, ending in positive territory for only the second time in 10 trading days, as investors navigated a volatile market.
Big Three: Top executives from General Motors, Ford and Chrysler returned Wednesday to Capitol Hill for a second day of hearings before the Senate Banking Committee.
The executives say they urgently need "bridge loans" from the government to keep their companies afloat. Automakers have reported huge quarterly losses as they burn through cash amid dwindling sales and tight credit.
An auto industry bankruptcy would be a "huge negative for the economy," said Abigail Doolittle, a portfolio manager at Johnson Illington Advisors in New York. It would add to already rising unemployment, making it harder for the economy to recover, she said.
Congressional Democrats have supported using some of the $700 billion bailout fund to rescue the automakers. But Republicans have expressed doubts that such an approach will work.
Critics of government intervention in the auto industry say it would only postpone the inevitable demise of companies that have failed to remain competitive.
Grim readings: Economic data cast a pall over the market, highlighting anemic consumer spending trends and ongoing weakness in the housing market.
The Labor Department's Consumer Price Index, a key inflation reading, fell 1% in October, outpacing the 0.8% decline a consensus of economists surveyed by Briefing.com had forecast.
The closely watched core CPI, which removes volatile food and energy prices, fell 0.1%. Economists had expected a 0.1% rise after a 0.1% jump in September.
"This report clearly reflects the crunch in discretionary consumers' spending, which is likely to persist for the foreseeable future," said Ian Shepherdson, economist at High Frequency Economics, in a research note.
Separately, the Commerce Department reported record declines in both housing starts and building permits, darkening the outlook for new home construction.
Housing starts reached an annual rate of 791,000 in October, the lowest level on record. The rate was down 4.5% from the revised reading of 828,000 in September.
Building permits fell 12% to an annual rate of 708,000 in the month, breaking the previous low of 709,000 in March 1975. The annual rate for September was a revised 805,000.
Building permits were expected to fall to an annual rate of 772,000 in October, according to a consensus of economist opinions from Briefing.com. The housing starts figure was in line with expectations.
Other markets: In global trading, Asian markets slid and European shares were lower in early trading.
The dollar regained ground against the euro but fell against the pound and the yen.
COMEX gold for December delivery rose $3.30 to settle at $736 an ounce.
U.S. light crude oil for December delivery fell 77 cents to settle at a 21-month low of $53.62 a barrel on the New York Mercantile Exchange. It was the lowest closing price since January 22, 2007 when oil settled at $51.13 a barrel.
Gasoline prices dipped another 2.1 cents overnight to a national average of $2.047 a gallon, according to a survey of credit-card activity released Tuesday by motorist group AAA. The decline marks the 63nd consecutive day that prices have decreased. Prices have now dropped by more than half since the record high was set in July.
Bonds: Treasury prices gained, lowering the yield on the benchmark 10-year note to 3.44% from 3.52% late Tuesday. Treasury prices and yields move in opposite directions. (Full story)
The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, rose to 0.11% from 0.13% Tuesday, with investors preferring to take a piddling return on their money than risk the stock market. In September, the 3-month yield reached a 68-year low around 0% as investor panic peaked.
Borrowing rates were little changed from the previous day, with the credit market continuing to stall after a month long improvement. The 3-month Libor rate fell to 2.17% from 2.22% Tuesday, while overnight Libor rose to 0.44% from 0.4%, according to Bloomberg.com. Libor is a key bank lending rate. 
