Dive takes Dow below 7,000

New York —- A relentless sell-off in the stock market Monday blew through barriers that would have been unthinkable just weeks ago, with the financial sector at the core of growing fears.

The Dow Jones industrial average plummeted below 7,000 at the opening bell and kept driving lower all day, finishing at 6,763 —- a loss of nearly 300 points. Each of the 30 stocks in the index lost value for the day.

The Standard & Poor’s 500 stock index, a much broader measure of the market’s health, dipped below the psychologically important 700 level before closing just above it. It hadn’t traded below 700 since October 1996.

Investors were worried anew about the stability of the financial system after American International Group —- a leading insurer of now-toxic mortgage-backed securities —- posted a staggering $62 billion loss for the fourth quarter, the biggest in U.S. corporate history.

The renewed effort to prop up AIG, coupled with continued problems at other financial giants such as Bank of America Corp. and Citigroup Inc., are leading many investors to question whether the government’s efforts to bail out the financial system are working, analysts said.

Meanwhile, HSBC, Europe’s largest bank, issued a disappointing profit report and said it needed to raise capital. U.S.-traded shares of HSBC tumbled 19 percent.

Beyond daily headlines, Wall Street seems to have given up the search for a reason to believe that the worst is over and the time is ripe to buy again.

“As bad as things are, they can still get worse, and get a lot worse,” said Bill Strazzullo, chief market strategist for Bell Curve Trading, who said he believes the Dow might fall to 5,000 and the S&P to 500.

The Dow’s descent has been breathtaking. It took only 14 trading sessions for the average to fall from above 8,000 to below 7,000. For the year, the Dow has lost 23 percent of its value.

Its last close below 7,000 was May 1, 1997 —- a time when the market was barreling to one record high after another because of the boom in technology stocks. The actual closing price was the lowest since April 25, 1997.

Mixed economic readings provided little reason to expect a turnaround. Personal spending and incomes both rose for January, but construction spending fell 3.3 percent, more than twice what economists expected.

And coming later this week is much bigger, and more unnerving, data. The government on Friday will report the national unemployment rate and job losses for February. Those figures have been worse month after month.

So far, the economic readings and news coming out of financial companies are still so alarming that investors feel no alternative but to sell.

“We can unleash as many trillions of dollars in stimulus as we wish, but if we don’t fix the banking system, we still have a patient in cardiac arrest,” said Liz Ann Sonders, chief strategist at Charles Schwab.

Even when the market finally reaches a bottom, it probably faces a long, long recovery.

“We do feel that things can improve, but it is going to be years before we get back to levels we saw in the markets a year ago,” said David Chalupnik, head of equities at First American Funds.

The New York Times and the Los Angeles Times contributed to this article.

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Q: How safe is the money in my bank account?

A: So far, no banking customers have lost any of their deposits during the crisis. Deposits at failed banks have been purchased by another bank or, in rare instances, returned to customers. Nationwide, 40 banks have failed over the past year, including six in Georgia, compared to three in all of 2007. Most have been small community banks, but the failures have strained the coffers at the Federal Deposit Insurance Corp., which recently moved to raise an additional $15 billion by boosting the fees it charges banks.

More bank Q&A, A4

 ELIZABETH LANDT / Staff 
DOW DROPS BELOW 7,000 
The Dow Jones industrial average closed at 6,763.29, the lowest close since April 25, 1997.
Graph tracks Dow from April 25, 1997, to present.
April 25, 1997: 6,738.87 
Monday's close: 6,763.29, down 299.64 
Source: Yahoo Finance