NEW YORK (AP) -- A surprisingly bleak forecast for the world economy pushed stocks to their biggest loss in two months.Major stock indexes tumbled by more than 2 percent Monday, sending the Dow Jones industrial average down 201 points, after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent contraction.
The grim assessment was the latest unwelcome surprise for the market since last month and further eroded hopes that the economy was starting to emerge from recession. Investors began driving stocks sharply higher in early March, encouraged by modest improvements in housing, manufacturing and even unemployment.
The dampened economic outlook from the World Bank, a global lender based in Washington, also weighed on the prices of oil, metals, and other commodities. Those price drops in turn sent energy and metal producers' shares falling.
Hugh Johnson, chief investment officer of Johnson Illington Advisors, said the downbeat economic prediction confirmed fears that have been building in the market for two weeks.
"The forecast by the World Bank just dramatized that the market may have overstated what's coming for the economy," he said.
The stock market is coming off its first weekly loss in more than a month after mixed economic readings last week.
Investors have gone from enjoying a string of better-than-expected economic data to trying to manage a list of worries about the economy. Stocks have lost ground several times in the last month on fears that rising interest rates and inflation would upend an economic recovery.
Many analysts also say the relief that erupted in early March about the economy then led to outsize expectations for how quickly a recovery could occur. Other economic news has hit stocks since May. A disappointing government report last month on retail sales suggested the economy remained fragile, and the Federal Reserve reined in its expectations for how the economy will fare this year. more...
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