Falling commodities give Dow worst day of the year

Worries about an economic slowdown in China fueled a steep drop in commodity prices Monday, spooking investors and giving the stock market its worst day of the year.

The trigger for the sell-off came from China, where the world's second-largest economy expanded 7.7 percent in the first three months of the year, well below forecasts of 8 percent or better. That news pummeled copper, oil and other commodities. Shares of oil and mining companies fared the worst because China is a huge importer of their products.

The decline came after a pile of negative economic reports. In addition to the concerns about China, a separate report showed weak manufacturing in the Northeast, and a home builders' survey indicated housing activity isn't going to be strong, either, said Steven Ricchiuto, chief economist for Mizuho Securities.

"People are realizing that the global economy isn't as strong as they expected it to be," he said.

The market began tumbling hours before reports emerged of two bombs exploding in the packed streets near the finish line of the Boston Marathon. The attack that killed two people and injured more than 100 was just one more thing to worry investors.

The pullback disrupted, at least for the moment, the phenomenal rally that has sent the Dow Jones industrial average up 13 percent and the Standard & Poor's 500 index up 11 percent in 2013. Both indexes marked record highs only last Wednesday. But the market's exceptional performance has fueled widespread speculation about an inevitable retreat.

Concerns that Cyprus and other troubled European countries may sell gold to raise cash have also weighed on prices for precious metals, said Dan Greenhaus, chief global strategist at the brokerage BTIG.

The Dow tumbled 265.86 points to close at 14,599.20, a decline of 1.8 percent. Caterpillar, a maker of heavy equipment used by miners, led the index lower, falling 3 percent, to $82.27. The S&P 500 index slumped 36.48 points to 1,552.37, a loss of 2.3 percent.

The S&P was led by Freeport-McMoRan Copper & Gold, which fell 8 percent to $29.27. Analysts at Citigroup placed a "sell" rating on the mining giant on the expectation that copper prices will continue sliding.

The Nasdaq composite fell 78.46 points, or 2.4 percent, to 3,216.49.

It was the biggest drop for the stock market since Nov. 7 — Election Day — last year.

Of the 10 industry groups in the S&P 500, materials and energy stocks fared the worst, losing 4 percent. Indexes of small companies and transportation stocks, which are more vulnerable to swings in the economy, also fell 4 percent.

Crude oil prices hit their lowest level since mid-December, sliding $2.58 to finish at $88.71 in New York trading. And gold fell $140, plunging below $1,400 an ounce for the first time in two years as a sell-off in metals continued from last week. Gold has now slumped $203 an ounce over the past two days.

Frank Fantozzi, CEO of Planned Financial Services, a wealth management firm, says people had bought gold since the financial crisis on the belief that it was safe place to keep money. But now that the metal has slid 20 percent this year, they're jumping out.

"I think you're getting some panic selling right now" in the gold market, Fantozzi said. "People who have been holding on to gold expecting a rebound are now thinking, 'I better get out.'"

Cetin Ciner, a finance professor and expert in precious metal markets at the University of North Carolina, Wilmington, said gold had also offered a protection against rampant inflation when the economy recovered. That helped push gold prices as high at $1,900 in 2011, but the high inflation they worried about still hasn't hit.

Gold "was bound to collapse at some stage," Ciner said. "People were waiting and waiting for higher inflation, and they finally realized it's not happening."

Just seven stocks rose in the S&P 500. Among them, Citigroup inched up 9 cents, to $45.87, after the country's third-largest bank reported earnings that beat analysts' estimates. Stronger revenue from trading and investment banking lifted the bank's results.

Sprint Nextel jumped after Dish Network offered $25 billion to buy the company. Dish's bid is aimed at beating an offer from the Japanese phone company SoftBank. Sprint surged 14 percent, to $7.06, and Dish fell 2 percent, to $36.77.

Thermo Fisher Scientific offered $13.6 billion to buy genetic testing equipment maker Life Technologies. That works out to $76 in cash for each share of Life Technologies. Thermo Fisher's stock fell 1 percent, to $78.58, while Life Technologies rose 7 percent, to $73.11.

In the market for U.S. government bonds, which traders often buy when they're concerned about the economy, the yield on the 10-year Treasury note retreated to 1.69 percent, its lowest level of the year. That's down from 1.72 percent late Friday.

But for all the alarm among investors, experts doubt that the drop in stock prices is a harbinger of another global recession. Deep government budget cuts have slowed the U.S. economy and kept Europe in recession. And China's economy is cooling. But economists still expect the U.S. economy — the world's biggest — to gain strength during the second half of the year.

Nearly four years after the Great Recession ended, the American economy has a stronger foundation. Rising home prices and near-record stock prices make consumers feel wealthier and more willing to spend. And although China's growth was below expectations, it was still a pace that would be considered strong anywhere else.

The broader outlook for stocks was not likely to be "tremendously affected" by Monday's sell-off, Ciner said.

"There's so much money being pumped into the system, and the money has to go somewhere," he said, referring to the more than $2 trillion in bonds the Federal Reserve has bought since the Great Recession.

And there's ample evidence that the U.S. economy is making substantial improvements.

"There is some growth. Profits are up. So I don't think commodities will affect stocks," Ciner said. "There may be some volatility, but I think stocks will continue to go up in the short term."