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By MICHAEL M. GRYNBAUM
Panic came to Wall Street on Monday morning, but its stay was brief, at least for one day.
The Dow Jones industrials finished more than 360 points lower, dropping below the 10,000 mark for the first time in five years, as markets around the world spiraled downward in the face of a banking crisis that has tightened its grip on the global economy.
But the outcome could have been worse. After 2 p.m., the Dow was on track for an ignominious record — 800 points lower in a single session, worse than the 777-point drop a week ago.
At one point, the broader stock market had fallen about 8 percent.
Instead, investors appeared to have a small change of heart. The Dow marched back to the 10,000 milestone and even topped that number in the closing minutes of the session. When the final trades were counted, the index was off 363.35 points, or 3.5 percent, at 9,962.03.
The broader American stock market fell 3.8 percent, as measured by the Standard & Poor’s 500-stock index.
“Today is watching the sky fall,” said T.J. Marta, a fixed income strategist at the Royal Bank of Canada.
Selling intensified throughout the morning as investors reeled from a series of high-profile bank bailouts in Europe, where governments scrambled to save several major lenders from collapse.
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The Dow has lost more than 1,100 points — or about 10 percent — in slightly more than a week. The S.&P. has lost more than 15 percent in the same period.
The sharp slides came despite more reassurances from President Bush and a morning announcement from the Federal Reserve that it would significantly expand the amount of money it made available to major banks. The Fed will now lend up to $900 billion in credit, an enormous sum that officials hope will reassure banks that the government will provide them with adequate capital.
The moves were aimed at resolving a problem at the center of the current credit crisis: the reluctance of banks to lend. The healthy functioning of the world’s economy is dependent on the easy flow of short-term loans among banks, businesses and consumers, a stream that has been cut off as banks become more fearful of giving out cash.
Those fears have persisted despite a $700 billion bailout package passed by Congress last week. The package was supposed to help restore some liquidity to the credit markets.
Borrowing rates remained very high on Monday despite last week’s Congressional approval of the $700 billion bailout package, although proponents of that package argue that its longer-term benefits will take time to carry out.
“That’s a longer-term solution; it will help once things have calmed down,” Mr. Marta said.
“But right now, things aren’t calm. Right now, the fire’s kind of burning out of control.”
Events over the weekend in Europe only intensified investors’ anxieties. European stocks fell by the biggest amounts in decades. Major indexes in London and Frankfurt lost more than 7 percent; stocks in Paris fell by 9 percent.
On Wall Street, energy stocks dropped by more than 10 percent as a whole after oil prices dropped below $90 a barrel, reaching their lowest levels since February. Crude oil was trading just over $89 a barrel in New York after 2 p.m.
Shares of financial firms, manufacturing outfits, and industrial companies all fell sharply. Only six companies in the entire S.&P. 500 were up for the day, including Wrigley, the chewing gum giant, and Monster, the parent company of job-seeking Web site Monster.com
Some gauges of anxiety in the market again reached record highs as the week began, and a benchmark overnight borrowing rate, the Libor rate, moved higher. A measure of volatility, the VIX index, jumped to its highest intraday level ever.
“It’s not just a question clearing problem assets,” said Bob McKee, chief economist for Independent Strategy, a research consultancy. “If banks don’t have enough capital they will be paralyzed.”
President Bush made an unscheduled stop on Monday morning to speak about the crisis with owners of small businesses in San Antonio — and the television cameras that follow him there.
“It’s going to take a while to restore confidence in the financial system,” the president said at Olmos Pharmacy, an old-fashioned soda shop and lunch counter.
“We don’t want to rush into this situation and have the program not be effective,” Mr. Bush said, calling the package “a big step” toward fixing the economy.
Falling oil prices provoked a decline of just over 1,000 points, or nearly 9.9 percent, on the Toronto Stock Market. The drop brought the S.& P./TSX index below 10,000 points for the first time since May 2004.
Energy stocks drove the decline, falling 13 percent. Financial industry shares were down 7 percent in midmorning trading, with the Royal Bank of Canada, the country’s largest bank, down 8.43 percent. That drop came despite the fact that the Royal Bank, like most of Canada’s major banks, has relatively little exposure to troubled debt in the United States.
Strong prices for oil and gas as well as commodities like metals have allowed most of Canada to escape the economic downturn in the United States. But the Bank of Nova Scotia report released on Monday said that weakness in the manufacturing sector, which relies heavily on exports to the United States, would most likely push Canada into a recession.
In Europe, governments worked over the weekend to prevent the collapse of two lenders, Hypo Real Estate in Germany and the Belgian operations of Fortis. The German government also said it would guarantee all private bank deposits as it sought to avert the spread of the financial contagion.
The FTSE 100 index in London fell 7.8 percent; the Frankfurt DAX was down 7 percent and the CAC-40 in Paris lost 9 percent.
A similar sell-off occurred in Asia, the Nikkei 225 stock average in Tokyo fell 4.3 percent, while the Kospi index in Seoul fell 4.3 percent. The Standard & Poor’s/ASX 200 index in Sydney fell 3.3 percent, while the Hang Seng index in Hong Kong was down 5 percent.
“People are really disappointed by the inability of Europe to react on a concerted basis,” said Andrew Popper, a fund manager at SG Hambros in London. “It’s still very much a country-by-country approach. There is also a realization that we haven’t seen any effects on economic growth so far but that now is starting and that’s having an effect on nonfinancial shares.”
Steps by some European governments over the weekend to guarantee deposits may avoid a panic among consumers but will not help banks cope with their financing problems, said Adrian Darley, a fund manager at Resolution Asset Management in London.
“There are still a lot of issues out there,” Mr. Darley said. “Deposit guarantees are just a short-term solution. It does not necessarily help with interbank loans or if you have bad loans on your books. It will take a lot more than that.”
In Iceland and Russia, trading on banking shares was halted after indexes fell more than 14 percent.
Shares of industrial companies were hammered in Europe with EADS, the parent of Airbus, falling 7.5 percent. ArcelorMittal, the world’s biggest steel maker, dropped 8.6 percent, and the German automaker Daimler was down 5.8 percent. British Airways slid 10.3 percent.
Nicholas Bibby, an economist in the Singapore office of Barclays Capital, said that falling share prices showed that many investors were still worried that banking difficulties might spread even after the passage of the financial bailout plan in Washington. “It’s a fear of contagion,” he said, while adding that Asian banks were better positioned than most to withstand the current problems because the region’s high savings rate tends to mean that Asian banks are net lenders in international money markets.
Concerns about Asian exports have also been rising for months, because the region’s high savings rate means that its spending on consumption is weak and it remains heavily dependent on overseas demand.
CFC Seymour, a Hong Kong securities firm, pointed out in an investment newsletter on Monday that even before recent problems in financial markets, the combined trade balance of Japan, South Korea, Taiwan, Thailand, Indonesia and the Philippines had gone from a surplus of $19 billion as recently as last October to a deficit of $2 billion in July. Only China is still running consistently large trade surpluses.
The realignment in the currency markets that has lifted the dollar and yen against the euro continued, as investors worried about Europe’s banks and economic health and continued their flight to the apparent stability of Japan’s financial system.
The euro fell to $1.3609 in Paris morning trading, from $1.3772 in New York late Friday. The dollar fell to 103.42 yen, from 105.32, and the euro declined to 140.74 yen, from 145.07.
The Shanghai stock exchange, closed for the last week for China’s National Day holiday, reopened on Monday with the Shanghai A-share market down 3.5 percent. The China Securities Regulatory Commission announced on Sunday that it would experiment with the introduction of short-selling and trading on margin on a limited basis, but did not say when the trial would begin.
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