Dow and S&P 500 at '97 lows

Big losses send the two major gauges to levels not seen in nearly 12 years.

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By Alexandra Twin, CNNMoney.com senior writer

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Which government rescue program will help the most people?
  • Housing
  • Stimulus
  • Autos
  • Banks

NEW YORK (CNNMoney.com) -- The Dow and S&P 500 tumbled to levels not seen in nearly 12 years Monday, as investors continue to worry that the government's efforts to slow the recession won't be sufficient.

The Dow Jones industrial average (INDU) lost 250 points, or 3.4%, ending at the lowest point since May 7, 1997.

The S&P 500 (SPX) index lost 26 points, or 3.5%, ending at the lowest point since April 11, 1997.

The Nasdaq composite (COMP) lost 53 points, or 3.7%. The tech-fueled index has held up better than the rest of the market so far this year, closing at the lowest points since Nov. 20, 2008.

"It's fear-based selling," said Dave Hinnenkamp, CEO at KDV Wealth Management. "The fact that we're touching these multi-year lows tells you we don't know where the bottom of this thing is."

Stocks gained in the morning on reports that the government may boost its stake in Citigroup as it briefly assuaged fears that the troubled bank would have to be nationalized. But the early advance quickly petered out, as the worries of the last few weeks returned.

"There is just nobody who wants to buy right now," said Ron Kiddoo, chief investment officer at Cozad Asset Management.

"The skepticism is back," Kiddoo said. "I think we need to hear some optimistic talk from our leaders and soon."

Stocks are now extra vulnerable with the major gauges at the multi-year lows, said Gary Webb, CEO at Webb Financial Group.

"Worries about how long it will take for the government programs to have an impact and worries about the health of the banks and the autos are all there," Webb said.

But there is also just the day-to-day reality that many investors are losing money and don't know when they are going to stop losing money, he said.

After the close of trade, JPMorgan Chase said it was cutting its divided to 5 cents per share from 38 cents per share currently.

Tuesday preview: Economic reports are due on home prices and consumer confidence.

The S&P/CaseShiller Home Price index, which is due before the market open, is expected to have fallen at a record 18.25% annual pace in December, according to a consensus of economists surveyed by Briefing.com. The index tracks home prices in 20 major metropolitan areas.

The Conference Board's February Consumer Confidence index is expected to have fallen to 36.0 in February from 37.7 in January. That reading would be the lowest since the Conference Board began tracking the index in 1967.

A pair of retailers report quarterly earnings Tuesday morning. Dow component Home Depot (HD, Fortune 500) likely earned 15 cents per share versus 40 cents a year ago, according to a consensus of analysts surveyed by Thomson Reuters. Target (TGT, Fortune 500) is expected to have earned 83 cents versus $1.23 a year ago.

Federal Reserve Chairman Ben Bernanke begins the first day of his two-day semi-annual testimony before Congress on monetary policy. On Tuesday, he speaks at a Senate Banking Committee hearing and on Wednesday at a House Financial Services Committee hearing.

On Tuesday evening, President Obama addresses the joint session of Congress, with his speech due to start at 9:00 p.m. ET.

Financials: Stocks have tumbled over the last two weeks on worries that the government won't be able to slow the recession, despite announcing a series of programs. On Friday, stocks slipped on worries that Citigroup and Bank of America might have to be taken over by the government altogether.

Some of those worries were tempered Monday on reports that the government is looking to boost its stake in Citigroup (C, Fortune 500), something that would fall short of full nationalization but would enable it to avoid bankruptcy. Should Citigroup be fully nationalized by the federal government or forced to declare bankruptcy, that would wipe out all shareholder value. Citi gained 9.7%.

Separately, Treasury said in a joint statement with other departments that the government is ready to give more money to banks if they need it. The Capital Assistance Program begins Wednesday.

The program, previously announced by Treasury Secretary Timothy Geithner, involves giving banks "stress tests" to determine how they are doing and whether they need more money.

Company news: Meanwhile, the Treasury is also considering its options as General Motors (GM, Fortune 500) and Chrysler continue to flounder, despite having received billions in federal aid. According to a Wall Street Journal report Monday, the administration believes the possibility of Chapter 11 bankruptcy filings by the two companies must be seriously considered. GM shares ended unchanged.

Fellow automaker, Ford Motor (F, Fortune 500) has reached a tentative deal with its union on changed to retiree health care benefits, considered to be a critical concession on the part of the UAW. Shares rallied 9.5%.

A variety of big tech stocks slumped, including Intel (INTC, Fortune 500), Microsoft (MSFT, Fortune 500), Cisco Systems (CSCO, Fortune 500), Oracle (ORCL, Fortune 500), Dell (DELL, Fortune 500) and Apple (AAPL, Fortune 500).

Yahoo (YHOO, Fortune 500) could announce a major management reorganization as early as Wednesday, although more likely next week, according to a published report Monday. Yahoo shares fell 1.4%.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost seven to one on volume of 1.61 billion shares. On the Nasdaq, decliners topped advancers by seven to two on volume of 2.07 billion shares.

Economists: A leading group of economists expect a deeper recession in the first half of the year followed by a modest recovery in the second half and a bigger recovery in 2010.

Reports are due later this week on housing, manufacturing and gross domestic product growth.

Bonds: Treasury prices inched higher, with the yield on the benchmark 10-year note falling to 2.77% from 2.79% Friday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, most Asian markets ended mixed, while European shares ended lower.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for April delivery fell $1.59 to settle at $38.44 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $7.20 to settle at $995 an ounce. To top of page

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