A grim economic forecast from the World Bank put pressure on stocks and commodities prices on Monday and increased demand for Treasurys and the dollar.
Shortly after the opening bell, the Dow Jones Industrial Average was lower by about 97 points. The S&P 500-stock index fell 1.6% and the Nasdaq Composite Index declined 1.6%.
The World Bank added to the market's unease about the economic outlook as it said that the global economy will shrink by 2.9% this year. That is worse than the body's previous forecast for a 1.7% contraction.
Commodities prices, which have risen sharply in recent months on hopes for an economic turnaround, declined. The front-month crude-oil futures contract sank more than $1 to under $68 a barrel in recent trading.
Treasury yields declined as investors snapped up government debt despite an upcoming meeting of the Federal Reserve and the expected sale of $104 billion in notes this week. The benchmark 10-year note climbed 16/32 to yield 3.71%. The dollar gained against the euro but declined against the yen, in a pattern that has frequently emerged when traders grow nervous about the outlook.
The Fed is expected to leave interest rates unchanged, but traders are looking for any indication that the central bank intends to rein in some of its monetary stimulus. Fed-fund futures are pricing in at least four quarter-point increases in a year's time, though many economists view an increase in the Fed's target rate as unlikely before the central bank has reined in other extraordinary measures it took to boost the economy and financial markets during the worst of the credit crisis.
Among stocks to watch, U.K. mining company Anglo American jumped 5% on reports that it received a merger offer from Xstrata in a deal that, if accepted, would create the world's No. 3 miner. Peers Rio Tinto and BHP Billiton fell 6% and 3% respectively.
Apple gained 1% after The Wall Street Journal reported that Steve Jobs, who has been on medical leave since January, received a liver transplant two months ago. The company said that it sold more than one million of its new iPhone 3G S handsets over the device's debut weekend.
Markets in Asia were generally stronger, with the Nikkei 225 closing 0.4% higher in Tokyo. Markets in Europe were weaker
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