NEW YORK — The stock market on Monday suffered its most devastating collapse since the 1987 crash as shellshocked investors dumped shares en masse after the House voted down a proposed $700-billion rescue of the financial system.
The unexpected defeat of the bailout package fanned fears that the most debilitating financial crisis since the Great Depression could intensify.
The Dow Jones industrial average sank 777 points -- the largest point drop in its 112-year history. The Standard & Poor's 500 index plunged 8.8%, its sharpest decline since Black Monday two decades ago, while the Nasdaq composite index plummeted 9.1%.
The tense credit markets tightened further as anxiety-ridden investors rushed into super-safe Treasury securities, pushing their yields down.
"The financial markets are in panic," said John Spinello, a Treasury market strategist at Jefferies Group Inc. in New York. "And until politicians realize that, and until Main Street America realizes that it's not a Wall Street problem -- it's a Wall Street and a Main Street problem -- the financial markets are going to be volatile and the decline is going to be hard to arrest."
The flight to U.S. government securities, along with news of several major bank bailouts in Europe, boosted the value of the dollar against most major currencies.
Prices of oil and other commodities, already down early Monday on fresh concern about the global economy, accelerated their slides after the House vote. Crude futures tumbled $10.52, or 9.8%, to $96.37.
The day began with global stock markets falling on the new signs of financial stress in Europe and fears that the rescue package wouldn't quickly ease a logjam in the credit markets or stave off a deep economic downturn.
Many investors say the bailout, despite its potential shortcomings, is necessary and would help restore tattered confidence in the financial system.
"The last thing the market needed was another dose of uncertainty, and that's what we got in spades," said John Bollinger, head of Bollinger Capital Management in Manhattan Beach.
The credit markets have congealed in the last two weeks, with loss-ridden banks hoarding cash and refusing to lend to one another or to other companies. That poses an enormous risk to the economy as businesses of all sizes have trouble raising cash to meet payrolls, build inventory or expand their operations.
