Dow Drops 242 Points

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The Lowdown

Stocks finished sharply lower Monday, as more concern over the financial sector contributed to a selloff that wiped out Friday's gains. Each of the major indexes lost more than 1.9%. The Dow Jones Industrial Average dropped 242 points to 11386. The Nasdaq lost 49 at 2366, and the S&P 500 dropped 25 to 1267.

Every major sector lost ground. Financials, telecoms, capital goods and materials were the biggest losers. Techs, telecoms and consumer staples and cyclicals also took a step back.

In finance, shares of American International Group (AIG) fell to their lowest point in 13 years after Credit Suisse (CS) predicted the insurer would post a third-quarter loss and lowered its price target. On Friday, Fitch Ratings warned that it may downgrade the firm.

Lehman Brothers (LEH) also weighed on the sector. Traders bailed on the firm after Korea Development Bank sought to tamp down rumors that it was interested in acquiring the firm.

In energy, crude prices rebounded in afternoon trading. By 3:55 p.m., oil traded up 70 cents on the day at $115.29 a barrel. Oil prices had fallen more than $6 a barrel on Friday, as concern over the health of the economy weighed on demand.

High energy prices and inflation are now of greater concern to economists than they were in March, according to latest Economic Policy Survey from the National Association for Business Economics. "Rising substantially in the ranking of short-term risks were energy prices and inflation, at 16% and 15%, respectively; returning these concerns to the forefront after two years of a more benign environment," the NABE wrote. At the same time, near-term concern over the credit crunch declined.

In housing, the July reading of the annual rate of existing home sales came in above consensus estimates. "We hope the new tools in the hands of home buyers from the recently enacted housing stimulus package will spark a sustained sales uptrend in the months ahead," Richard F. Gaylord, the president of the National Association of Realtors, said.

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