NEW YORK — The stock-market rubber band snapped back Monday, stinging investors who had been enjoying a powerful rally in recent weeks, as the threat of carmaker bankruptcies underscored the economy's problems.
The Dow Jones industrial average skidded more than 250 points and foreign markets fell.
The sell-off, led by financial stocks, wasn't exactly a surprise; traders had been bracing for one almost since the recent rally began. From March 9 to late last week, the Dow surged 21% and the Standard & Poor's 500 index gained 23% -- representing for each index a typical two-year gain, or more, in less than three weeks.
"You've got a market that was very stretched out in the short term," said Al Goldman, chief market strategist at Wachovia Securities. "We were cruising for a bruising whether we had good news, bad news or no news."
Still, some investors fretted that Monday's decline could signal an end to the recent rally as the market approached what could be a difficult period.
The Labor Department's monthly unemployment report Friday is expected to show that the country shed 659,000 jobs in March -- roughly in line with February's drop but still a huge number that would mean increased pressure on the economy.
Next week, companies will begin to release what are likely to be dreary first-quarter earnings reports that could weigh heavily on investor psyches.
The bottom line, many analysts said, is that an end to the recession isn't coming soon enough to warrant a sustained stock rally now.
"At the end of the day, stock prices are determined by earnings," said Dan Greenhaus, market analyst at Miller Tabak & Co. in New York. "And as long as earnings continue to come in less than expected, continue to decline, stock prices are going to have a hard time going up."
The Dow fell 254.16 points, or 3.3%, to 7,522.02. It was down nearly 338 points an hour before the closing bell.
Monday marked only the second time that the Dow fell two days in a row since the March rally began. The index gave up 148 points Friday.
The S&P 500 skidded 28.41 points, or 3.5%, on Monday to 787.53. The Nasdaq composite index slumped 43.40 points, or 2.8%, to 1,501.80.
Foreign stocks tumbled, with shares dropping 3.5% in Britain, 5.1% in Germany and 4.7% in Hong Kong.
An index of the shares of 24 large banks sank 10% after Treasury Secretary Timothy F. Geithner said Sunday that banks might need considerably more government money.
