Stocks Tumble in Broad Sell-Off

Stocks tumbled Tuesday as investors returned from summer vacation in a selling mood, facing new doubts about the economy and jitters over the global financial system.

The Dow Jones industrial average sank 355.45 points, or 4.1%, to 8,308.05 as all 30 stocks in the index lost ground.

The broader Standard & Poor’s 500 slid 38.05 points, or 4.2%, to 878.02--its biggest percentage drop in almost a year. The tech-oriented Nasdaq composite slid 51.01 points, or 3.9%, to 1,263.84.

The major indexes remained above the multiyear lows they set in midsummer, but Tuesday’s sell-off was a reminder that the recovery since then may be fragile.

As stocks sank, some investors rushed into Treasury bonds, driving yields to record lows.

As the U.S. stock market began what historically has been its worst month, there were plenty of reasons to fret, analysts said: Investors watched Japan’s main share index sink to a 19-year low, while worries about possible financial problems at European insurance companies sent bourses there sliding.

Meanwhile, a disappointing report on U.S. manufacturing activity worsened investor sentiment on Wall Street, as did cautionary brokerage reports about banking giant Citigroup and semiconductor leader Intel.

Ongoing fears of a U.S.-Iraq war also weighed on the market.

After rallying 17.5% from its multiyear low July 23, the Dow has fallen 8.2% in the last seven trading sessions, raising the possibility of another demoralizing leg down in the 29-month-long bear market.

In Tuesday’s trading, more than three stocks fell for every one that rose on both the New York Stock Exchange and Nasdaq, and volume picked up, though it was far from heavy.

On the economic front, the Institute for Supply Management said its manufacturing index fell shy of expectations in August, with new orders declining for the first time since November.

The trade group’s report was troubling, analysts said, because businesses will be reluctant to spend until they see evidence of a pickup in demand.

“Clearly we’re in an economic soft spot,” said Jay Mueller, economist at Strong Capital Management in Milwaukee. “The question is: How long does it persist, and does it become self-reinforcing?”

In the computer chip industry, Intel slid 81 cents to a multiyear low of $15.86 after a Lehman Bros. analyst predicted the bellwether will cut its third-quarter revenue forecast when it updates its business outlook Thursday.

The latest economic data and the Japanese market’s plunge Tuesday again raised comparisons between the Japanese market bubble of the late 1980s and the U.S. bubble of the late 1990s.

“I hear a lot of concern that we may be headed the way of Japan--that this is not just a two-or three-year bear market but something really ugly,” said Steve Colton, manager of the Phoenix-Oakhurst Growth & Income mutual fund in Scotts Valley, Calif.

Yet many economists still say the U.S. will be able to stave off a “double dip” recession and the nation’s financial system remains healthy--unlike the situation with Japan’s banks.

“Whenever the economic numbers are a little soft, the ‘Japan syndrome’ camp becomes a little more vocal,” Mueller said.

He said that despite some iffy loans, the U.S. banking system is more solid than Japan’s, which has been reeling since that country’s real estate bubble burst in the late 1980s. Mueller also said the U.S. ultimately will continue to benefit from its willingness to allow companies to fail, leading to a painful but necessary reallocation of capital as business cycles take their course.

Colton said seasonal worries also may have played a major part in Tuesday’s sell-off.

“A lot of people are thinking it’s time to raise cash now and see if things trade lower,” he said. “Psychologically, people tend to go into September and October with a pessimistic feeling about stocks.”

Historically, September has been the worst month for the major U.S. indexes, on average, while October is remembered for its epic crashes, such as in 1929 and 1987.

“When the market drops 350 points in a day, you’d normally say that’s a time to buy. But September is supposed to be a cruel month, so maybe we’ll wait,” said George B. Kauffman, a retired chemistry professor from Fresno.

Some investors say the market remains too volatile for their temperament.

Linda Swick, a businesswoman from North Hollywood, said she abandoned stocks more than a year ago.

“I went into Treasury bonds before Sept. 11,” she said. “The market needs to stabilize before I go back. Right now, it just seems like gambling.”

Others say they continue to grit out the downturn.

“I have to believe it’s going to get better, because I don’t have anything else to believe in,” said Liesel Friedrich, a Santa Monica homemaker. “Even though I get these horrible statements every month showing these huge losses--and it’s enormously painful and scary--I don’t have a solution. There’s no place else to put your money.”

In other trading, the U.S. dollar slumped sharply in reaction to Wall Street’s sell-off, and oil prices dropped after Iraq reiterated that it would allow United Nations weapons inspections, a move some traders took as easing the threat of a U.S. attack.

Among Tuesday’s highlights:

* In Europe, Germany’s main share index lost 5.8%, France’s slid 4.5% and Britain’s dropped 3.6%.

* The U.S. factory report weighed on manufacturing stocks, including General Electric, down $1.69 to $28.46, and 3M, off $4.92 to $120.03.

* In the tech sector, IBM fell $3.03 to $72.35, Cisco Systems slid 75 cents to $13.07 and Microsoft dropped $2.06 to $47.02.

Market Roundup, C8-9