At its worst point, the Dow was down more than 800 points, an intraday record. The stock market rallied during the final 90 minutes of the trading day, and the Dow finished down about 370 points at 9,955.50.
The average is down almost 30 percent from its all-time high of 14,164.53, set a year ago Thursday.
Speculation among traders late in the session that the market's pullback had been severe enough to force the Federal Reserve into taking other steps to soothe the markets helped stocks rebound from their lows.
"If you can't say that we're oversold now I don't know what you say. You're at least due for a bounce if nothing else," said Bill Stone, chief investment strategist for PNC Wealth Management.
The global plunge in stocks was under way well before Wall Street ever woke up. In Japan, the Nikkei average lost more than 4 percent. And then the losses spread across Europe - nearly 6 percent for the FTSE-100 in Britain, 7 percent for the German DAX and more than 9 percent for France's CAC-40.
In the United States, President Bush twice made unscheduled remarks on the economy, saying in Cincinnati that the economy would be "just fine" but that the bailout package needed time to work.
The troubles that started with an overheated housing market in the U.S. have infected financial markets around the world, making banks fearful of lending to other banks, let alone to businesses and consumers. That has led to worries that economies around the world might not only sputter but slide into reverse.
The crush of selling Monday came exactly one week after the Dow lost 778 points, its biggest closing loss in terms of points. On that day, the House voted down an earlier bailout package that had appeared to be a safe bet to pass.
The swings in the Dow on Monday also marked the beginning a fourth week of tumult in the markets. Triple-digit Dow swings have been commonplace since mid-September, when investment house Lehman Brothers went bankrupt and the government stepped in to bail out insurer American International Group.
But even with the bailout package firmly in place - a plan under which the federal government will buy bad mortgage-related assets off the books of banks - investors remain worried that banks are too fearful to lend and are cutting off air to the economy.
Over the weekend, governments across Europe rushed to prop up failing banks, while the governments of Germany, Ireland and Greece also said they would guarantee bank deposits. U.S. investors appeared worried the bailout would not be enough to jump-start the economy. Even other steps, including a Federal Reserve decision to expand a loan program to squeezed banks, didn't help much.
The sharp one-day tumbles over the last two Mondays don't come close to the drops that became black marks on the timeline of Wall Street history. Black Monday, in October 1987, and stock drops that preceded the Great Depression were more than 20 percent. Monday's drop, by comparisons, was less than 8 percent at its worst.
For the day, the Dow lost 3.6 percent. The selling was broad: Little more than 200 stocks finished the day higher on the New York Stock Exchange, while about 3,000 finished lower.
At its lowest point Monday, the Dow was down 800.06, at 9,525.32. The benchmark average dipped below 10,000 for the first time since Oct. 29, 2004, and closed there despite the afternoon rally.
The market's paper loss at the day's lows came to $1.1 trillion, as measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies' stocks. That compares with a loss of about $1.5 trillion last week; that was the worst weekly return since the week after trading resumed following the Sept. 11, 2001, terror attacks.
As an indication of how fearful investors still are, government-backed debt was in high demand. The yield on the three-month Treasury bill, which moves in the opposite direction as its price, fell to 0.49 percent from late Friday at 0.50 percent. Investors are willing to accept low returns to have their money in a secure place.
Investors also moved into longer-term Treasury bonds as they fled the stock market. The yield on the 10-year note fell to 3.45 percent from 3.60 percent late Friday.
Broader indexes also plunged. The Standard & Poor's 500 index shed 42.34, or 3.85 percent, to 1,056.89; and the Nasdaq composite index fell 84.43, or 4.34 percent, to 1,862.96. The Russell 2000 index of smaller companies dropped 23.49, or 3.79 percent, to 595.91.
Consolidated volume on the NYSE reflected the frantic pace of the day's trading: 7.81 billion shares changed hands, up from Friday's 6.52 billion.
The market "is displaying one of its worst traits with a herd mentality, and investors have an appetite for feeding on fear," said Anthony Sabino, a professor of law and business at St. John's University.
But he cautioned it was still not a nightmare scenario. "Most certainly, this is not the Great Depression of the 1930s, but (is like) the savings and loan crisis of the 1980s - and we bailed them out," he said. "Once people catch their breath, they'll see this is the proper analogy and this will breathe life back into banking institutions."
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