NEW YORK (CNNfn) - The Dow Jones industrial average suffered its biggest one-day point drop in history Monday, prompting officials to take the unprecedented step of closing markets early.
Taking its cue from a sell-off in Asia, the Dow tumbled 554.26 points, or 7.18 percent, to 7,161.15, smashing through so-called "circuit breaker" halts that were designed to prevent crashes like the October, 1987 disaster.
By the time the dust had settled, more than $663 billion in market capitalization had been wiped out and investors were left wondering what would happen on Tuesday.
"I came in to look at my stock prices and I said, 'Oh my God, it's a crash!'" said Rosana Adivinadora, an astrologist from Queens who hovered around the monitors at a Charles Schwab & Co. office in New York.
After the market closed, U.S. Treasury Secretary Robert Rubin said the fundamentals of the U.S. economy remained strong despite Monday's sell-off.
"It is important to remember that the fundamentals of the United States economy are strong and have been for the past several years and the prospects for continued growth, with low inflation and low unemployment, are strong," Rubin said in a brief statement to reporters on the steps of the Treasury Department.
He said he was closely monitoring the situation in markets around the world and was in touch with international financial officials. He also said the market's payment and settlement systems and other mechanisms were working well. (336K WAV) (336K AIFF)
Earlier, the White House called for calm among investors and also said the U.S. economy's fundamentals were still strong.
"The market has taken breathtaking drops in the past, so let's just be calm and reasonable," White House spokesman Mike McCurry told reporters at a news briefing in Washington.
McCurry said U.S. Federal Reserve, Treasury Department and Securities and Exchange Commission officials were closely following the situation and looking at the implementation of "circuit-breaker" rules enacted after the 1987 crash.
Under those rules, trading was halted at 2:35 p.m. as the Dow tumbled 350 points, and again around 3:30 p.m. as the so-called "circuit breakers" were activated for the first time in history.
Shortly after 3:30 p.m., the circuit breakers halted trading for the day on all major U.S. stock exchanges, ending a session that, in terms of point declines for both the Dow Jones industrial average and the Nasdaq composite, outstripped the losses suffered in the October 19, 1987, crash.
But, in percentage terms, Monday's loss was only the 12th largest in history. On October 19, 1987, known as "Black Monday," the Dow lost 22.6 percent of its value -- the largest one-day percentage decline ever.
In Monday's session, the S&P 500 index closed 64.63 lower at 877.01. The technology-laden Nasdaq also dived 115.41 to 1,535.51. That amounts to a 6.99 percent drop, compared with the 11.35 percent the index lost on October 19, 1987.
The Dow transports index was also battered, losing 234.56, or 7.24 percent, to 3,004.58 -- its largest one-day point decline ever. The index fell 164.78 on October 19, 1987.
Monday's selloff apparently began as panic swept investors, who dumped stocks after Hong Kong's benchmark Hang Seng index lost almost 6 percent overnight. International companies and those with overseas holdings were among the hardest hit amid fears that the Asian crisis would dampen their earnings.
On the New York Stock Exchange, declines led advances, 2,992 to 159, as over 695 million shares changed hands.
The U.S. bond market, however, posted solid gains as wary stock investors sought refuge in Treasurys. The benchmark 30-year Treasury bond ended 1-5/32 higher to yield 6.18 percent.
Monday's losses brought the Dow down 13.3 percent from its record high of 8,259.31, reached just months ago on August 6. But even with these steep declines, the Dow is still up 11.03 percent on the year, well above the 6,448.27 level it ended 1996 at.
The Nasdaq is up 19.2 percent on the year, but down 11.9 percent, or 208.11 points, from a record high reached October 9.
Analysts said Monday's sell-off was a natural event in a market that has been overvalued for a while.
"This is the third year in a row where we've had 20 percent plus returns on the Dow, S&P and Nasdaq," said Michael Chung, equity analyst at Williams Capital Group. "I think this is a good breather for the market and I think it's a good wakening call for many people who are chasing names regardless of valuations."
Others, like UBS securities market strategist Gail Dudack, said the Dow should retreat to 6,300 before the market is close to fair value.
"I think we need to go back to 6,300 before there is a little bit more confidence about value when earnings growth is questioned," Dudack said.
Everything from technology to drugs and transportation stocks took a hit in Monday's bloodbath.
Among major declines, Oxford Health (OXHP) led the list of net losers on the Nasdaq, its shares tanking after a disappointing earnings forecast. The company said it expects to report a third-quarter loss of anywhere between 83 and 88 cents a share, down from a profit of 33 cents a share in the third quarter last year. The stock, which was also the most actively traded on the Nasdaq, was down 42-7/8 at 25-7/8. More than 49 million of the company's shares changed hands.
"I understand why Wall Street is responding as violent as they are, because this was the darling of Wall Street within the HMO group," said Gary Frazier, a health-care analyst at Bear Stearns.
Computer stocks were also the focus of many investors Monday amid news from several major companies.
Among them, chip maker Intel (INTC), announced plans Monday to cut prices on its Pentium processors by an average of 20 percent. The company's stock traded down 5-1/4 at 74-3/4.
Also on Monday, Intel and Digital Equipment (DEC) said they had reached a broad agreement and would request a halt on all lawsuits. The two companies had been involved in a legal dispute over alleged patent infringement. The stock of Digital Equipment traded down 5-5/16 at 45-1/4.
Compaq (CPQ) led the list of most actively traded stocks on the NYSE after topping the list of third-quarter worldwide computer sales. The company shipped about 2.77 million units in the quarter for a total market share of 13.1 percent. But the stock succumbed to the overall sell-off, trading 8-1/4 lower at 60-1/2.
Also, shares of Dell Computer (DELL) nosedived following an negative article in Barron's this weekend. The stock was down 12-1/16 to 81-7/8.
Monday's selloff also hit drug companies, led by Merck (MRK). Merck's stock was down 8-3/8 to 85 following news that a Smith Barney analyst had downgraded the stock and lowered earnings estimates.
All U.S. exchanges will be open at regular times for trading Tuesday.
--by staff writer Malina Poshtova Zang