Dow sheds 635 points

The Dow fell below 11,000 and investors poured into Treasurys in the first trading day after Standard & Poor's downgraded American debt.

The Dow Jones industrial average fell 634.76 points, or 5.5 per cent, to 10,809.85 in mid-afternoon trading.

It was the first time the index fell below 11,000 since November.

Treasury prices rose - despite S&P's assessment that they are a riskier investment than the debt of some other countries like Canada and France.

Investors still view Treasurys as one of the world's few safe havens from turmoil in other financial markets like stocks or commodities, analysts said.

"This is largely a flight to safety," said Thomas Simons, money market economist with Jefferies & Co.

"The bond market is really trading off of what's going on in the stock market."

He said the stock market now reflects the expectation of slower growth partly due to lower business and consumer confidence because of the S&P downgrade.

The yield on the 10-year Treasury note fell to 2.34 per cent from 2.57 per cent Friday. That matches its low for the year, reached last week

A bond's yield drops when its price rises. The 10-year note's yield fell as low as 2.06 per cent in 2008.

The S&P 500 fell 79.92, or 6.7 per cent, to 1,119.49. The Nasdaq composite index fell 174.72, or 6.9 per cent, to 2,357.69.

Monday 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 US government debt by one notch, from AAA, the highest rating, to AA+.

Able to fix it

In his first public comment on the credit downgrade, US President Barack Obama said Washington had the power to fix its own political dysfunction.

"Markets will rise and fall," he said Monday. "But this is the United States of America. No matter what some agency may say, we've always been and always will be a triple-A country."

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

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.

Last week, the Dow Jones industrial average fell almost 700 points. That was its biggest point loss since October 2008, during the financial crisis. The Dow has dropped in nine of the last 11 trading days.

The S&P 500 is already down 11 per cent so far in August. If it stays down just that much, it would be the worst month for the index since October 2008.

Stock markets in Asia began Monday's global rout. The main stock index fell almost 4 per cent in South Korea and more than 2 per cent in Japan. European markets opened later and fell, too, with Germany down 5 per cent and France 4.7 per cent.

Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth.

"We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets," they said.

The US Federal Reserve will meet today, Tuesday, but economists don't expect much to come out of the meeting.

The central bank's key interest rate is already at a record of nearly zero, where it has been since 2008. The Fed has also already said that it plans to keep rates low for "an extended period".

- AP