US stocks slumped on Monday after Israel's killing of the spiritual leader of the militant group Hamas added to global security worries and caused a broad sell-off by investors.
The three major stocks indexes each tumbled by 1 percent or more by midday, while Treasury prices rose as investors sought safe havens in US government debt and gold.
Israeli forces assassinated Sheikh Ahmed Yassin outside a Gaza mosque in the heaviest blow against the group that has been behind dozens of suicide bombings.
"There's concern about what's going on all over the world with regard to terrorist activities," said Bill Strazzullo, vice president at State Street Global Markets. "It's not necessarily new, but it seems like in the last few weeks the market's woken up to the fact they're not priced into current levels."
The Dow Jones industrial average sank 115.11 points, or 1.13 percent, to 10,071.49. The Standard & Poor's 500 Index lost 13.36 points, or 1.20 percent, to 1,096.42. The technology-laden Nasdaq Composite Index fell 30.98 points, or 1.60 percent, to 1,909.49.
Market watchers also voiced concerns about political instability in Taiwan, where the stock market fell 7 percent after President Chen Shui-bian's razor-thin election victory over the weekend was challenged by his opponent, Lien Chan.
Shares of Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker, gave up 79 cents, almost 8 percent, to $9.39 and were among the New York Stock Exchange's most actively traded issues.
The attack in Israel comes as many investors are worried about the US economic recovery's staying power amid stubbornly high oil prices and anaemic jobs growth. Monday's drop follows two weeks of losses by the major stock indexes.
"We had massive tax cuts and interest-rate cuts, and the point was to stimulate growth," Strazzullo said. "We certainly got improvement, but the real issue is whether we have hit a wall. Companies are still worried about costs, and that tells you they're not optimistic about their growth prospects."
US airline stocks fell after the Air Transport Association, an industry trade group, issued its monthly revenue per available seat.
The report showed that although international air travel is recovering, US vacation and business travel remains far from a robust recovery.
Most airline shares dropped after the ATA report. Shares of AMR Corp, parent of American Airlines, shares were down 67 cents, or 5.9 percent, to $10.71, while those of Continental Airlines fell 17 cents, or 1.5 percent, to $11.45.
The American Stock Exchange stock sank 3.0 percent. Shares of Boeing fell 91 cents, or 2.3 percent, to $38.52.
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