LOS ANGELES AND NEW YORK — The steadily worsening economic outlook sent the price of oil below $60 a barrel to a 19-month low, with stock prices going along for the ride down.
The Dow Jones industrial average declined 176.58 points, or 2%, to 8,693.96. The index, which was down almost 310 points at its low, gyrated throughout the day.
"This will continue until there's that proverbial light at the end of the tunnel, and that would be some evidence that [economic recovery efforts] are all coming together and starting to work," said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, N.Y.
Oil futures fell $3.08 to $59.33 a barrel, their lowest close since March 2007. Prices of other commodities also slid, sending an index of 19 commodity futures contracts down 3.5%.
Following oil's cue, retail gasoline prices continued to slide. Nationwide, a gallon of self-serve regular was selling for an average of $2.22, down $1.03 in just the last month, AAA said Tuesday based on its daily survey of pump prices.
In the stock market, all but one of the 10 broad industry groups in the S&P 500 declined, with commodity and energy producers leading the way down.
Financial stocks briefly fell to new lows as investors braced for another round of steep write-offs by banks on their mortgage-related holdings in the fourth quarter.
The banking sector and stocks overall came off their lows at midday on a report that the government's $30-billion portfolio of troubled mortgage assets acquired from defunct brokerage Bear Stearns in March isn't the black hole that many had feared -- and could end up being worth more than its current market value.
The securities are generating cash flows "very close to what we had anticipated from the very beginning," Robert Kapito, president of BlackRock Inc., the portfolio's manager, said at a conference in Boston, Reuters reported.
The remarks suggest the market value of many mortgage-backed bonds could rebound from their depressed levels. Such a development would be good news for banks. The collapse of such mortgage securities this year has been a major drag on financial firms' balance sheets, triggering huge write-offs and forcing the companies to raise fresh capital.
Shares of Fannie Mae, Freddie Mac and Citigroup fell on concerns that their home-loan modification efforts announced Tuesday could eat into earnings. Fannie slid 5.3%, Freddie dropped 6.8% and Citigroup lost 3.7%.
