U.S. Stocks Plunge On Anniversary Of 1987 Crash; Dow Down 2.6%

NEW YORK (MarketWatch) - U.S. stocks tanked Friday -- the 20th anniversary of Black Monday -- as panicky investors opted to sell after disappointing earnings from blue chips Honeywell International Inc., 3M Co. and Caterpillar Inc. tipped the delicate balance the street had walked between hard-hit financials and strength in technology.

"We knew financials were terrible, but we didn't know we would receive this kind of guidance from the Heartland," said Art Hogan, chief market strategist at Jefferies & Co.

The Dow Jones Industrial Average dropped 369.1 points, or 2.7%, to stand at 13,519.8, giving it a weekly fallback of 4.1% and capping a five-session string of losses.

All 30 of the Dow's components closed in the red, with shares of 3M among the hardest hit -- down 8.6%.

The S&P 500 shed 39.47 points, or 2.6%, to 1,500.63, for a weekly plunge of 3.9%. The Nasdaq Composite lapsed 74.15 points, or 2.7%, to 2,725.16, for a weekly drop of 2.9%, despite a rise in Google shares after the Internet search giant beat earnings expectations.

"We started out the week a real dichotomy, with heavy reporting from financials and technology; tech did great, and financials did terribly, but we knew they were supposed to. Then we heard from another broader-reaching sector, the industrial space," said Hogan.

Fourth-quarter outlooks from Honeywell and Caterpillar shook investors.

"Guidance from Caterpillar was abysmal; during a conference call they were predicting a recession and saying they were seeing a housing market that hasn't been this bad in 50 years."

"We were set for a pullback today, but clearly the news has been no help," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "Going into the weekend, we don't know what is going to happen."

The declines brought back eerie memories of events in October, 1987, when the stock market plunged on Friday, Oct. 16, before collapsing the following Monday, the 19th. Most traders and strategists said they don't expect the coming Monday will bring a rout like the market saw 20 years ago, though they do believe stocks have further to fall.

Also allaying fears was the fact that the Dow's drop Friday, while large in points, was only 2.6%, compared to a 23% drop on Black Monday 20 years ago.

"It's ironic we're down on the crash of 20 years ago, but putting it in perspective, we would have had to have a 3,000-point sell-off today" to match the drop of two decades ago, said Jefferies' Hogan.

Volume on the New York Stock Exchange hit nearly 1.8 billion shares, with declining stocks topping advancers more than 5 to 1. On the Nasdaq, more than 2.4 billion shares changed hands, with decliners outpacing advancers 5 to 1.

On the New York Mercantile Exchange, crude-oil futures hit $90 a barrel for the first time ever, with the November-dated light-crude contract peaking at $90.02 a barrel before slipping to end down 87 cents at $88.60. .

"Friday's action was not a one-day event, it was something at work the whole week," said Alexander Paris, analyst at Barrington Research.

Mixed bag

Shares of Google Inc. , which vaulted to new highs in recent weeks and hit $600 for the first time earlier this month, climbed even further after the Internet search giant's quarterly results delivered against tall Wall Street expectations after Thursday's close.

Back among the blue chips, shares of Honeywell fell 3.9%. The company reported 14% growth in third-quarter earnings and raised its outlook for the full year.

Fellow Dow component Caterpillar cut its 2007 profit target, citing "severe weakness" in key U.S. markets. The equipment maker reported a 21% rise in third-quarter earnings.

Another blue chip, McDonald's Corp. , posted a 27% hike in quarterly profits, with the fast-food chain's bottom line supported by strong sales in Asia and the weak dollar.

Outsid the Dow, Xerox Corp. said third-quarter net income fell 53%, but earnings and sales topped expectations. Its shares were off 3.1%.

Financial fallout

Also, shares of Wachovia Corp. slipped as the company reported third-quarter earnings that fell 10%. The bank booked a $1.3 billion write-down from disruption in the fixed-income markets. .

Capital One Financial Corp. late Thursday reported that it swung to a third-quarter loss of $81.6 million, or 21 cents a share, from a profit of $750.4 million, or $1.89 a share, a year ago. Shares traded down 5%.

In another bearish development for the beleaguered financial sector, Massachusetts securities regulators are probing whether Bear Stearns Cos. improperly traded with two in-house hedge funds, according to a report in The Wall Street Journal.

After a week of write-offs from banks, Friday's decline is in part the result of a battle waged since August, pitting credit issues and housing on one side against sectors not directly impacted, such as technology.

But questions linger over the potential for spill-over into the overall economy, traders said.

UBS downgraded banking HSBC Holdings PLC to neutral from buy, citing valuation as well as a likely slowdown in European growth in 2008.

In addition, The Wall Street Journal reported the U.K. banking group is being sued by U.S. real-estate fund Luminent Mortgage Capital Inc. over allegations the bank's U.S. mortgage-trading operations took advantage of the recent credit crisis to profit at the fund's expense.

Former Federal Reserve chief Alan Greenspan said the "Super SIV" fund could have serious repercussions, according to an interview with the Emerging Market newspaper and posted on its Web site Friday.

In the article, Greenspan said the "Super SIV" -- the $75 billion Master Liquidity Enhancement Conduit proposed by Citigroup Inc. , Bank of America Corp. and JP Morgan -- runs the risk of further undermining already brittle confidence in besieged credit markets.

The dollar was steady against the euro but slipped against its other major counterparts, as the Group of Seven leading industrial nations' finance ministers met in Washington. .

Treasurys continued to rise on increased expectations that the Fed will cut interest rates late this month. The benchmark 10-year Treasury note was up 23/32 at 102 24/32, with a yield falling to 4.4.03%. .

In action overseas, European shares fell as banking stocks declined following a downgrade of HSBC and investors assessed corporate updates from companies such as advertising giant WPP.

Markets in Asia were mixed and Hong Kong was closed for a holiday.

By Kate Gibson