NEW YORK (CNN/Money) - A dismal year for U.S. stocks ended with more losses Monday as investors hope 2002 can snap the market's worst slump in a generation.
The last trading session of the year capped the major indexes' first back-to-back annual decline since 1974. But 2001 also finished on an up note: Stocks have erased all the losses suffered after terrorists attacked the nation.
"I am very optimistic for 2002," said Michael Cohen, co-manager of the Alpha Analytics Digital Fund, which has fallen nearly 50 percent this year but rallied more than 66 percent since the end of September.
Cohen expects the combination of lower interest rates, tax cuts and cheap energy prices to help revive the economy next year.
The session brought few clues about the health of the nation's corporations. Oracle (ORCL: up $0.13 to $13.94, Research, Estimates) announced job cuts, ImClone Systems (IMCL: down $2.06 to $44.40, Research, Estimates) delayed launch of its colon cancer drug, and airline America West (AWA: up $0.49 to $3.99, Research, Estimates) accepted a multimillion-dollar government loan.
Monday marked the last chance for money managers to dress up portfolios with winning stocks and pare losing ones to show clients in 2001 annual reports. But many of those changes were made weeks ago.
Both Microsoft, the year's best performing Dow Jones industrial average component, and Boeing (BA: down $0.60 to $38.18, Research, Estimates), the worst performer, fell.
Monday also was the last time investors could sell losing stocks to offset gainers for the current tax year. But the market's two-year decline has limited the need for much tax-loss selling in 2001.
The Nasdaq composite index fell 36.84 points, or 1.8 percent, to 1,950.42 widening its 2001 loss to 21 percent following a tumble of more than 39 percent in 2000. The Dow Jones industrial average slipped 115.42, or 1.1 percent, to 10,021.57. The blue chips fell 7.1 percent this year after a 6 percent slide in 2000.
The Standard & Poor's 500 index declined 12.94, or 1.1 percent, to 1,148.08, widening its annual decline to 13 percent, following a 10.1 percent drop the previous year.
U.S. financial markets reopen Wednesday following Tuesday's New Year's Day holiday.
Market breadth was mixed. On the New York Stock Exchange, advancing stocks edged declining ones 8-to-7 as 944 million shares traded. Nasdaq losers nipped winners 9-to-8 as 1.3 billion shares changed hands.
In other markets, Treasury securities rose, closing out another winning year for bond investors. The dollar edged higher against the yen but fell versus the euro, which officially replaces the currencies of 12 European countries Tuesday.
Bruising year
From their peak in 2001, the Dow industrials have fallen 14.5 percent while the Nasdaq is down 61 percent.
Click here for a look at the year in the markets
Blame some of the Nasdaq's slide on Oracle, whose shares tumbled more than 50 percent this year. The software maker said it will cut as many as 840 jobs, or 2 percent of its global work force of 42,000, as part of a realignment of the company's services business.
The latest job cuts come during a month when the nation's unemployment rate is expected to rise above November's six-year high of 5.7 percent. Companies cut more than 1 million jobs this year, a period when a decade-long economic expansion came to an end.
America West, the best performing stock on the NYSE, announced it has received approval for $380 million in federal loan guarantees to assist the industry's recovery from the Sept. 11 terrorist attack.
ImClone said it expects the launch of its colon cancer drug Erbitux to be delayed following questions by U.S. regulators over the drug's clinical data.
Still, the markets have been rising since Sept. 21, the week after trading resumed following the terrorist attacks, as investors bank on better economic times ahead. The Dow is up more than 21 percent since Sept. 21 while the Nasdaq has surged 37 percent.
Data Friday showed that consumer confidence and new home sales surged during the year's final months. The pace of new claims for jobless benefits has slowed in recent weeks. Overnight inter-bank lending rates stand at 40-year lows, thanks to 11 rate cuts by the Federal Reserve.
Charles Pradilla, chief investment strategist at S.G. Cowen, forecasts a good, but not spectacular, 2002, in part because the market already has rallied during the last three months.
"I expected we will be somewhat muted," Pradilla told CNNfn's Before Hours. He's calling for high single-digit to low double-digit percentage returns.
A year of stock market losses masked plenty of winners. The three best performing stocks among the Dow industrials - Microsoft (MSFT: down $0.15 to $66.10, Research, Estimates), IBM (IBM: down $0.45 to $120.51, Research, Estimates) and AT&T (T: up $0.23 to $18.37, Research, Estimates) - all are up more than 40 percent in 2001. And small stocks have held steady - the Russell 2000 index of small companies is up 2 percent this year through Friday's close.
Lehman Brothers investment strategist Jeffrey Applegate expects stocks to advance next year as profits rebound. In a note to clients Monday, Applegate said he's encouraged by low inflation and tumbling interest rates, even though he calls stocks "richly valued."
He also apologized for the "underperformance" of his firm's recommendations this year.
"That does not make us, or our clients, very happy," Applegate said, expressing a sentiment shared by many investors this year. 
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