Stocks recouped most of their losses late in the day as cooler heads held sway.
The Dow Jones industrial average lost 77.76 points, or 0.9 percent, to 8,533.65. The index fell 283.21 points to 8,328.20 in the morning session.
"What had happened is that we'd been lulled into a false sense of complacency that we were in something like a perfect world," said David M. Jones, chief economist at Aubrey G. Lanston Inc. "What has happened most recently on both political and financial fronts is the threat of a lot more instability, and thus a lot more risk if you hold stocks in terms of earnings and stock prices.
"So I think the typical global portfolio manager is trying to get out of equities and buy something safe in the form of fixed-income Treasury securities," Jones said. "It became clear this week that we're moving into a new era globally in terms of terrorism. And President Clinton, in my view, is weakened significantly by the [Monica Lewinsky] scandal."
Investors fled sinking global markets to the relative safety of U.S. bonds. Treasury bonds and the U.S. dollar surged, with the yield on the benchmark 30-year Treasury issue tumbling to a record low since the government began regularly issuing the security in 1977. The 30-year Treasury advanced 23/32, to yield 5.462 percent.
Venezuela said it will allow its currency, the bolivar, to float within a specified range - a de facto devaluation. Venezuela's IBC stock index sank 9.9 percent.
The big fear is that other Latin American countries will devalue their own currencies. Such a development would pressure Asian nations to follow suit.
Elsewhere in Latin America, Brazil's stock market was shuttered for 30 minutes after its Bovespa index cascaded 10 percent. And Mexico's IPC stock index fell 7.0 percent.
Further weakness in foreign currencies vs. the U.S. dollar would have the effect of damping foreign demand for domestically produced goods. It would also make it tougher for U.S. corporations to compete with foreign firms and their cheaper goods in the U.S. market.
Russia's sense of disorder took a new turn Friday, with the State Duma, Russia's lower house of Parliament, passing a resolution calling for the resignation of President Boris Yeltsin. On Monday, Russia will announce the details of a restructuring plan to pay off its massive foreign debt.
Russia's benchmark RTS index sank 5.6 percent, standing 75 percent lower since the start of the year.
"I don't think anybody thought that an emerging country, which Russia is, could see a meltdown as complete as that one," said David M. Jones, chief economist at Aubrey G. Lanston Inc"Basically, Russia is running out of foreign exchange reserves, with banks closing, and securities in general collapsing.
"There's basically no market left for Russian securities."
Major European markets also saw big losses. Frankfurt's DAX index plunged 5.9 percent. German banks have a hefty exposure to Russia's economy.
In Japan, 87-year-old trading company Okura & Co. filed for bankruptcy due to poor real estate investments and anemic earnings. It was the third-largest bankruptcy in Japan's corporate sector so far this year, raising the specter of more such announcements in the months to come.
In Asian markets, Hong Kong's Hang Seng index fell 2.8 percent and Tokyo's Nikkei 225 index lost 0.6 percent. See full story.
In Friday's market highlights:
- The Standard & Poor's 500 Index fell 1.0 percent.
- New York Stock Exchange losers blasted winners by 3 to 1.
- On the Big Board floor, 701 million shares crossed the tape.
- The Nasdaq Composite declined 1.8 percent. Declining issues led advancers by 3 to 1 in the Nasdaq Stock Market. Volume totaled 748 million shares.
- The Russell 2000 Index of small-capitalization stocks sank 1.6 percent.
- Shares of Autodesk fell 6 7/8 to 25 3/4. The developer of computer-aided design software will buy Discreet Logic for $530 million in stock.
- Peerless Systems plunged 69 percent, or 14 3/16 points, to 6 9/16. It posted second-quarter operating profits of 14 cents a share, exceeding most estimates by a cent, and surpassing the 9 cents it earned in the year-ago period. But the company warned that earnings for each of the quarters in its 1999 and 2000 fiscal years will fall below the levels of a year ago, citing falling revenues for shipments of products to original equipment manufacturers as well as weakness in its engineering services segment.
- Ciena lost close to half of its market value, dropping 26 5/8 to 30, after AT&T indicated it will cease evaluating products of the telecommunications equipment supplier. AT&T had considered using Ciena's 16-channel dense wavelength division multiplexing systems, or DWDM, which boosts the capability of fiber optic phone lines and data networks.