New fears of terrorism sent stock markets tumbling around the world Monday and extended Wall Street's sell-off into a second week.
U.S. investors reacted to market declines in Japan and Europe after reports that the Al Qaeda terrorist network had claimed responsibility for weekend attacks in Turkey and named Japan and other U.S. allies as potential targets.
But analysts said some of Wall Street's slide was in reaction to a gloomy outlook for the key holiday season from retailer Toys R Us.
The Dow Jones industrials sank more than 130 points before regaining ground late in the session, despite a better-than-expected report on business inventories and news that several companies were in merger talks, which often gives the market a boost.
The Dow ended the day down 57.85 points, or 0.6%, at 9,710.83 -- its lowest close in three weeks. The Standard & Poor's 500 index fell 6.72 points, or 0.6%, to 1,043.63 and the tech-laden Nasdaq composite index lost 20.65 points, or 1.1%, to 1,909.61.
All three indexes notched losses last week, led by Nasdaq with a drop of 2.1%.
In Tokyo, government leaders shrugged off the latest terror threats, but the Nikkei-225 index lurched to a three-month low after the reports about Al Qaeda, falling 3.7% to close below 10,000 for the first time since Aug. 15.
European markets followed, with key share indexes sliding 2.6% in France, 1.3% in Britain and 3.2% in Germany.
Some of the declines in Britain could be related to this month's central bank interest rate hike, said Francois Lemoine, a Paris-based European stock strategist for bank BNP Paribas.
But there was little doubt that many investors were nervous about the terrorist threats.
"I don't really see what's driving markets down apart from the fact that there have been a number of attacks over the weekend," Lemoine said, referring to the bombing of two synagogues in Turkey on Saturday. "I hardly find anything else to explain the fall."
Treasury bond prices rose as investors looked for a safe haven. The yield on the benchmark 10-year Treasury note, which moves in the opposite direction of the price, slipped to 4.20% from Friday's close of 4.22%.
The dollar, meanwhile, strengthened against the yen and euro.
Gold futures plunged, however, after the precious metal approached $400 an ounce in New York trading but failed to reach the milestone.
Gold for December delivery closed down $6.30 an ounce to $391.50 after falling as low as $386 during the day. The stronger greenback eroded the buying power of gold investors in Europe and Japan because the metal is priced in dollars.
In the day's economic news, a Commerce Department report showed America's businesses boosted their stockpiles of unsold goods in September for the first time in six months, a sign that companies may be feeling more confident about the economic recovery. Economists were expecting inventories to be flat in September.
However, the report was offset by the news that Toys R Us is closing its free-standing Kids R Us and Imaginarium stores and cutting its full-year earnings forecast, saying it was not seeing any improvement in consumer confidence. The retailer fell $1.56, or 12%, to $11.18.
Among toy makers, Mattel lost 26 cents to $19.12 and Leapfrog Enterprises dropped $1.22 to $33.13.
Several companies were in merger talks Monday, but that did little to raise the major indexes.
Travelers Property Casualty announced it would combine with St. Paul in a $16-billion stock deal that would create the nation's second-largest insurer. St. Paul was up 97 cents at $37.74 on the news. Travelers' class A shares were unchanged at $16.03, while class B shares fell 2 cents to $16.04.
Also Monday, auto parts maker ArvinMeritor said it would increase its hostile takeover bid for rival Dana. ArvinMeritor lost 12 cents to $17.94, while Dana dropped $1.41 to close at $15.24.
Decliners outnumbered advancers by more than 2 to 1 on the New York Stock Exchange and Nasdaq. Trading was moderate.
In other highlights:
* Profit taking hit some technology stocks that have been hot this year. National Semiconductor fell $1.03 to $40.14, PMC- Sierra dropped $1.39 to $19.91, Ansys lost $1.26 to $37.53 and Digital River slid 78 cents to $24.77.
* Travel-related shares declined after the terror attacks. Delta Air Lines lost 46 cents to close at $11.40. Continental Airlines fell 64 cents to $16.79.
* Lowe's dropped 72 cents to close at $57.91, despite a 33% rise in third-quarter profit. The world's second-largest home improvement retailer beat analyst expectations by 3 cents a share.