"The biggest thing the U.S. economy has going against it right now is a lack of consumer confidence. You can see the writing on the wall, if the American consumer continues to have a pullback in the fourth quarter during the holiday season, everything gets hit," said Timothy Speiss, head of Eisner LLP's wealth management division.
Off session lows that had it down nearly 300 points, the Dow Jones Industrial Average shed 176.58 points, or 2%, to end at 8,693.96, with all but one of its 30 components finishing in the red.
The greatest laggard among the blue chips was battered General Motors Corp. , off 13.1% after hitting lows not seen since 1943 amid concerns the automaker might burn through its remaining cash before the end of the year.
Former Dow component American International Group Inc. lost 0.9% as investors took in the Treasury Department's new bailout plan for the giant insurer.
"The markets are looking for bad news, trying to understand where the next shoe could be dropped. AIG might continue to get a lot of attention, and the GM matter has been problematic," said Speiss.
Also weighing on the Dow industrials, Alcoa Inc. fell 7.1% after the aluminum giant's downgrade to market perform from outperform by Freidman, Billings, Ramsey Group Inc.
The S&P 500 declined 20.25 points, or 2.2%, to 898.96, and the Nasdaq Composite fell 35.84 points, or 2.2%, to 1,580.9.
Telecommunication services, financials and energy led the broad-based declines that stretched to include all of the S&P 500's 10 industry groups.
Volume was light, topping 1.2 billion on the New York Stock Exchange, where decliners beat advancers roughly 4 to 1. On the Nasdaq, 809 million shares traded, and decliners topped advancers nearly 3 to 1.
Made in China
U.S. stocks ended lower Monday, as gains from China's half-billion-dollar stimulus plan eroded amid worries about the health of GM. The Dow industrials fell 73 points, the S&P 500 lost 11 points and the Nasdaq Composite dropped 30 points.
An overly U.S.-centric market bypassed a very positive development, Speiss contends.
"China has made a huge investment into its economy; and keeping China as an importer is very important to the stability of the global economy, the U.S. included," said Speiss.
Crude-oil futures fell sharply on the New York Mercantile Exchange, as concern about the global economy fed thoughts of reduced demand. Crude for December delivery fell $3.08, or 4.9%, to close at $59.33 a barrel. .
Gold futures dropped nearly $14 an ounce, with the contract for December delivery falling $13.7 to end at $732.8 an ounce. .
The dollar rose against the euro but fell vs. the Japanese yen. .
"There will continue to be negative news going into the first quarter," said Speiss of earnings reports, which included a profit drop from Starbucks late Monday. The coffee giant's stock fell 3.4%. .
American Express Co. fell 6.6% after the Federal Reserve approved the credit-card firm's application to become a bank.
Toll Brothers closed fractionally lower after it estimated fourth-quarter home-building revenue fell 41% from the year-ago period.
Shares of Vodafone Group PLC gained 6.6% after the mobile giant unveiled a new strategy to contend with the general economic downturn. .
InterContinental Hotels lost 7.1% after it reported a 28% falloff in third-quarter profit and warned market conditions dropped sharply in October. .
Chesapeake Energy Corp. dropped 5.5% as it reached a deal worth up to $3.37 billion with StatoilHydro Asa to develop holdings in Appalachia.
Las Vegas Sands Corp. said it would sspend construction in Macau to save cash and focus on projects under way in Singapore and Pennsylvania.
Overseas, equities in Moscow fell sharply, forcing trading suspensions on the local stock exchanges, as the Russian central bank allowed the ruble to weaken about 1% against its dual currency basket. .
The Nikkei 225 dropped 3% in Tokyo. . The FTSE 100 fell 3.6% in London.
By Kate Gibson