Stocks pull back as global economic worries rise

US stock market declines as World Bank reduces 2009 forecast for global economy

• By Madlen Read

NEW YORK (AP) -- Lowered expectations for the global economy are giving investors more to be wary about.

Major stock indexes retreated by at least 2 percent Monday after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent decline.

Deteriorating hopes for a quick economic recovery also weighed on the prices of oil, metals, and other commodities. Those commodity price drops in turn sent energy and metal producers' shares falling.

Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc., said stock investors want to see stability in commodity prices -- not a surge or a tumble. A sharp rise in commodity prices is hurts consumers, while a sharp drop is sign of weak demand around the world.

"You need a balancing act within the commodity markets," Cardillo said.

The stock market is coming off its first weekly loss in more than a month after mixed economic readings last week. No major economic reports are due Monday, but in the coming days traders will get data on new and existing home sales, durable goods orders, gross domestic product and personal incomes and spending.

The Federal Reserve will also be in the spotlight after its two-day meeting on monetary policy that ends Wednesday. The central bank is expected to hold its key funds rate steady near zero, but investors want to know whether policy makers will buy more Treasurys than they initially planned to help keep interest rates down.

The Fed has been buying up Treasurys and other kinds of debt in an effort to keep borrowing rates low at the same time the government has been issuing record amounts of debt. The Treasury Department is planning to auction another $104 billion in debt this week.

In midday trading, the Dow Jones industrial average fell 172.16, or 2 percent, to 8,367.57. The Standard & Poor's 500 index fell 23.24, or 2.5 percent, to 897.99, and the Nasdaq composite index fell 51.81, or 2.8 percent, to 1,775.66.

Last week, the Dow fell 3 percent, the S&P 500 index dropped 2.6 percent and the Nasdaq composite lost 1.7 percent. The Dow remains up 30.4 percent from the 12-year lows it reached in early March, but has fallen in four of the last five trading days.

Bond prices rose on Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.70 percent from 3.78 percent late Friday.

Crude oil fell $2.90 to $66.65 a barrel on the New York Mercantile Exchange, while gold prices also fell.

Shares of companies that produce commodities dropped. Oil company Chevron Corp. fell $2.38, or 3.5 percent, to $65.68, while aluminum producer Alcoa Inc. fell 76 cents, or 6.9 percent, to $10.24.

The dollar was mostly higher against other major currencies,.

The Russell 2000 index of smaller companies fell 15.70, or 3.1 percent, to 497.02.

About eight stocks fell for every stock that rose on the New York Stock Exchange, where volume came to 464 million shares, down from 954 million at the same time on Friday.

Overseas, Japan's Nikkei stock average rose 0.4 percent. In late trading, Britain's FTSE 100 fell 2.6 percent, Germany's DAX index fell 3 percent, and France's CAC-40 fell 3 percent.