US stocks sank on Monday, with all three major market gauges falling to their lowest levels this year, after the killing of a key figure in Iraq's new government increased investors' worries about geopolitical instability and helped push US oil futures prices to their highest levels in 21 years of New York trading.
Citigroup Inc and Microsoft Corp were the biggest drags on the Standard & Poor's 500 Index. Weakness in Qualcomm Inc and Microsoft held back the technology-laden Nasdaq, which fell to a low unseen since October 2003.
Surging oil prices continued to rattle investors, who worried that escalating energy prices would hurt consumer spending, one of the drivers of the economy's recovery. Crude oil futures ended higher in New York on Monday, but had retreated from the record high of $41.85 a barrel hit in overnight trading.
"My big concern a few weeks ago was the stock market was too focused on interest rates, but clearly it's now focused on instability in the Mideast, which is leading to higher oil prices," said Robert Mikkelsen, senior managing director of equity capital markets at The Advest Group.
However, "volume looks like it's going to come in below average, which leads me to believe a lot of investors are sitting on the sidelines," Mikkelsen said. "In the short term, I still expect to see a high level of fear and nervousness."
The Dow Jones industrial average ended down 105.96 points, or 1.06 percent, at 9,906.91, while the broader S&P 500 Index fell 11.62 points, or 1.06 percent, at 1,084.08.
These mark the lowest closing levels for both the Dow and S&P 500 since December 2003.
The Nasdaq Composite Index slid 27.61 points, or 1.45 percent, to 1,876.64, its lowest finish since last October.
US Treasury bond prices rallied in response to the violence in Iraq as investors bought safe-haven government debt, pushing down the yield on the benchmark 10-year note to 4.69 percent from Friday's close of 4.77 percent.
The major stock indexes rose from their session lows in mid-morning trading after the US military reported an artillery shell had exploded in Iraq, releasing a small amount of the nerve agent sarin.
It was the first news of the discovery of any of the weapons on which the Bush administration made its case for war.
"It's probably a relief reaction, since it may give credence to the argument over weapons of mass destruction that the Bush administration made for going to Iraq," said Brian Bush, research director at Stephens Inc, in Little Rock, Arkansas.
"We're under such scrutiny world-wide. Any news that would elevate the US standing is positive."
Trading was active, with 1.43 billion shares changing hands on the New York Stock Exchange, higher than the 1.4 billion daily average for last year. About 1.53 billion shares were traded on Nasdaq, below last year's 1.69 billion daily average.
Lucent Technologies topped the New York Stock Exchange's most active list, falling 18 cents, or 5.5 percent, to $3.10. On Monday, the US Securities and Exchange Commission said it charged 10 individuals with securities fraud for their roles in accounting problems at the telecom equipment maker.