NEW YORK—US stocks dropped sharply on Monday, while Treasury bond prices actually rose in the wake of Standard & Poor’s unprecedented downgrade of the US credit rating.
The Dow Jones Industrial Average fell 381.37 points (3.3 percent) to 11,063.24 shortly after 1430 GMT.
The broader S&P 500 dropped 47.08 points (3.9 percent) to 1,152.30, while the tech-heavy Nasdaq Composite plunged 108.49 points (4.3 percent) to 2,423,92.
Standard & Poor’s lowered the US long-term sovereign debt rating from AAA to AA+ after markets closed Friday, citing Washington’s inability to rein in its mounting deficits.
The sell-off accelerated on Monday after Standard & Poor’s extended its downgrade to US mortgage giants Fannie Mae and Freddie Mac, whose bonds are guaranteed by the US government and widely held around the world.
Traders worried that the downgrade would hit the bond markets as well, but instead Treasury prices climbed.
The yield on the 10-year Treasury fell to 2.40 percent from 2.56 percent late Friday, while 30-year bonds dropped to 3.74 percent from 3.82 percent. Bond prices and yields move in opposite directions.
Gold, another safe-haven asset, hit a new intraday high of $1,715.75 on the spot market in New York.
World markets, already reeling from fears of spreading eurozone debt contagion, were battered in the wake of the downgrade.
Frankfurt and Paris were both down more than four percent in afternoon trading, while London fell more than three percent. The Sao Paulo stock exchange, South America’s largest, opened 4.59 percent lower.
In Asia, Tokyo shed 2.18 percent, Seoul sank 3.82 percent, and Sydney fell 2.91 percent.
Oil prices also fell as traders feared that a new economic downturn could erode global energy demand.
New York’s main contract – light, sweet crude for delivery in September – plunged $3.01 to $83.87 a barrel in early trade, while in London, Brent North Sea crude for September shed $3.47 to $105.90 a barrel.
The historic decision by Standard & Poor’s to downgrade the United States’s credit rating, which had been AAA since 1941, had been widely expected but nonetheless compounded worries about the global economy.
Even before the downgrade, stock markets had plunged last week on concerns that growth in the United States was slowing and the world’s largest economy might be on the brink of a double-dip recession.
Financial markets are also on edge over concerns that Italy and Spain could fall victim to the eurozone debt crisis, which has already snared Greece, Ireland and Portugal.
With anxiety high that eurozone and US debt could plunge the world into a new financial crisis, the European Central Bank signaled late Sunday that it would make major purchases of eurozone government bonds, which market sources indicated on Monday had included Italy and Spain.
“The ultimate driver is uncertainty,” said Patrick O’Hare, an analyst with Briefing.com.
“Say what one will about the S&P downgrade, the emergency meetings in Europe, the finger-pointing in Washington, and the rebuke from China … it all adds up to more uncertainty,” he said.
On Wall Street, basic materials companies and energy firms were among the worst performers early Monday, with aluminum giant Alcoa dropping 5.2 percent and oil major ExxonMobil falling 2.9 percent.
Bank of America plunged 9.6 percent after it was sued for $10 billion by insurance group AIG over losses on mortgage-backed securities.