US stocks sank on Monday, as a raft of bad news hinting at a worsening economic situation offset China's big-bang stimulus package, and the Bush government's revamped bailout deal for insurance giant AIG.
The Dow Jones Industrial Average lost 73 points or 0.8% to end at 8,870.54 while the Standard & Poor's 500 index lost 12 points or 1.3% to close at 919. The Nasdaq Composite index shed 31 points or 1.9% to 1,616.
All three major US indices had risen in the early trading, before abandoning gains and turning lower.
Market breadth was negative. Almost three stocks dropped for each that advanced on the New York Stock Exchange.
The government said it was restructuring AIG's bailout plan, buying US$40bn in preferred stock, reducing its original US$85bn bridge loan to US$60bn, and cutting the interest rate by 5.5%. The total reworked deal is worth about US$152.5bn. The reworking acknowledges that the initial plan was insufficient to reverse AIG's slide.
Additionally, AIG reported a steep quarterly loss of US$24.5bn in the third quarter. Shares gained 8%.
Fannie Mae reported a steep quarterly loss of US$29bn. A large portion of the loss was due to a change in the way it accounted for tax credits. But even excluding that, results were far worse than a year ago, due to bad mortgage bets. Its shares fell 2.7%.
Citigroup is reportedly in talks to buy an unnamed regional bank, in the aftermath of its failure to buy Wachovia last month, according to The Wall Street Journal. Citi's shares fell 5%.
A number of financial stocks fell, including American Express, Goldman Sachs, Bank of America and Merrill Lynch.
Shares of leading automakers continued to plunge amid worries about their ability to stay afloat without government intervention. General Motors (GM) plummeted 23% and Ford lost 4.5%.
Both companies, along with Chrysler, are seeking help from the US government. On Friday, GM posted a steep loss and said it is running out of cash.
Deutsche Bank said shares of GM were likely worthless and that the company might not be able to fund its US business past December without the government's help.
Package-delivery firm DHL became the latest corporation to announce massive layoffs. DHL said it will cut 9,500 jobs as it ends air and ground operations within the US, focusing only on deliveries between the US and other nations.
Circuit City said last week that it would cut 17% of its domestic workforce and close 150 stores amid the sluggish economy and consumer spending slowdown. On Monday, the company filed for bankruptcy protection.
On the upside, McDonald's said worldwide sales at stores open a year or more jumped 8.2% in October, thanks to overseas consumers and demand for cheap food amid the recession. Shares gained 1.8%.
Telecom major Nortel Networks reported a quarterly loss versus a profit a year ago, and also said it was cutting 1,300 jobs. Shares fell 18.8%.
After the close, Starbucks reported weaker earnings and higher revenue, both of which missed estimates. Shares declined about 3% in extended-hours trading.
In global news, China announced a US$586bn stimulus package, aimed at tempering the impact of the global financial crisis.
The dollar gained against the euro and fell versus the yen. COMEX gold for December delivery rallied US$11.40 to settle at US$745.60 an ounce.
US light crude oil for December delivery gained US$1.37 to settle at US$62.41 a barrel on the New York Mercantile Exchange.
Gasoline prices fell another 1.9 cents to a national average of US$2.24 a gallon. The decline marks the 54th consecutive day that prices have decreased. During that same time period, prices dropped by US$1.61 a gallon, or 41.9%.
The credit market continued to improve. The 3-month Libor fell to 2.24% from 2.29% on Friday, a nearly four-year low. Overnight Libor inched higher to 0.35% from 0.33% Friday, after hitting an all-time low of 0.32% last week. Libor is a key inter-bank lending rate.
The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, inched lower to 0.21% from 0.26% on Friday, with investors preferring to take a small return on their money rather than risk the stock market.
Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.75% from 3.78% on Friday. | 
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