- Associated Press - Monday, August 8, 2011

NEW YORK (AP) — The U.S. stock market joined a sell-off around the world Monday in the first trading since Standard & Poor’s downgraded American debt and gave investors another reason to be anxious.

The Dow Jones Industrial Average fell more than 250 points minutes after the opening bell on Wall Street. It recovered some of those losses, then fell again and was down as much as 375 points in mid-morning trading.

Stock markets in Asia began the global rout. The main stock index fell almost 4 percent in South Korea and more than 2 percent in Japan. European markets opened later and fell, too, with Germany down 3 percent and France 2.5 percent.

It was the first chance for global investors to respond to S&P’s announcement late Friday that it was reducing its credit rating for long-term U.S. government debt by one notch, from AAA, the highest rating, to AA+.

The move wasn’t a total surprise but came when investors already were feeling nervous about a weak U.S. economy, European debt problems and Japan’s recovery from its March earthquake.

In other early trading on Wall Street, the S&P 500 index fell 41 points, or 3.4 percent, to 1,159. The Nasdaq composite index fell 75 points, or 3.8 percent, to 2,435. The Dow was at 11,101, down 3 percent.

Fresh memories of the financial crisis three years ago are also driving investors away from risky investments and into what’s considered safer.

“Fear of a repeat of 2008 is what’s really driving investments,” said Gary Schlossberg, senior economist with Wells Capital Management.

Gold, which investors traditionally buy when they want a safe investment, rose above $1,700 per ounce for the first time Monday. Its price remains below its 1980 record after adjusting for inflation. Gold began the year at $1,421.40. It has climbed steadily as worries rose about high debt levels in both Europe and the United States. It went above $1,500 per ounce in late May.

Prices for U.S. government debt rose — even after S&P essentially said they were a riskier investment than the debt of some other major world economies — because Treasurys are still seen as one of the world’s few safe havens. Prices rise as demand increases.

The yield on the 10-year Treasury note fell much of the morning, to 2.40 percent from 2.57 percent late Friday. A bond’s yield drops when its price rises.

Where Treasury prices finish the day will be more important than where they are at the start, Bill O’Donnell, head of U.S. Treasury strategy at RBS Securities, wrote in a report.

“We will learn more about the future path of Treasury prices at today’s close than we will by the open,” he said. “I want to see how the market clears and how it synthesizes the cacophony of news of late.”

Stocks in industries whose profits are most closely tied to the strength of the economy fell the most. Energy stocks in the S&P 500 fell 4.9 percent, and financial stocks fell 4.5 percent, for example.

The smallest losses came from stocks in safer industries whose profits tend to be steadier, regardless of the economy. Consumer staples stocks fell just 1.5 percent. Even in a bad economy people will still buy things like toothpaste and bread. Utilities, also considered a necessity for consumers, fell 2 percent.

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