The pullback on Wall Street, while steep, wasn't as bad as some observers had feared after stocks plunged overseas in response to another round of grim corporate news. Sony's profit warning sent its shares tumbling in Japan and offered only the latest example that companies are girding for a slowing economy and a pullback among consumers worried about falling home prices and losses on their investments.
And in Germany, Daimler's stock fell sharply after the company reported lower third-quarter earnings and abandoned its 2008 profit and revenue forecast. That followed news in the U.S. late Thursday from Microsoft Corp., which issued a weaker-than-expected forecast for its fiscal second quarter, pointing to the economy; other big U.S. companies have scaled back their forecasts as they announced third-quarter earnings.
"People have been saying that we're in a recession. This is the realization," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.
It is clear that many investors are convinced the world economy is headed for a severe downturn even as governments have raced to revive credit markets on the hope that a return of more normal lending levels by banks and other financial houses will fan economic activity.
But some say the recent pullbacks have been set off by forced selling, keeping some bargain-seeking traders from entering the market.
"There's nothing new going on," said Scott Bleier, president of market advisory service CreateCapital.com. "This is all about the unwinding of massive leverage."
Bleier attributed the declines to margin calls and investors in hedge funds and mutual funds cashing out. A margin call occurs when investors are forced to sell holdings, like stock, to raise cash at the demands of brokers.
"Market participants' fear is not that the economy is slowing," he said. "The fear is there is an endless supply of things for sale, regardless of price."
Steve Gross, principal at alternative investment and advisory firm Penso Capital Markets, said most large hedge funds have already slashed their positions. Instead, he sees a lack of demand: "There are no buyers at all."
Investors were nervous going into the session after U.S. stock futures - the bets traders place on where the market will go
- fell so sharply before Friday's opening bell that selling halts were imposed.
By the close, the Dow fell 312.30, or 3.59 percent, to 8,378.95 after falling 504 in the early going. Still, the blue chips remained above 8,000; at its recent low of Oct. 10, the Dow traded down to 7,882.51 but it hasn't finished below that level since 2003.
Broader stock indicators also fell Friday. The S&P 500 index declined 31.34, or 3.45 percent, to 876.77, and the Nasdaq composite index fell 51.88, or 3.23 percent, to 1,552.03.
Friday's finish was the lowest for the Dow since April 25, 2003, when it ended at 8,306.35. For the S&P 500, it was the lowest ending since April 11, 2003, when the index finished at 868.30. It was the Nasdaq's lowest close since a May 23, 2003, finish of 1,510.09.
The Russell 2000 index of smaller companies ended Friday down 18.80, or 3.84 percent, at 471.12.
Declining issues outpaced advancers by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to 6.45 billion shares compared with 7.05 billion shares traded Thursday.
Friday was the 79th anniversary of the day that, according to many market historians, the October 1929 stock market crash began. Selling began on Thursday, Oct. 24, and accelerated the following week on the days that have since become known as Black Monday and Black Tuesday, Oct 28 and 29.
For the week, the Dow fell 5.35 percent, the S&P 500 lost 6.78 percent and the Nasdaq fell 9.31 percent. The week's selling left the Dow down 40.9 percent from its Oct. 9, 2007, record close of 14,164.53, while the S&P 500 is off 44 percent from its peak of a year ago. The Nasdaq is down 45.7 percent.
The Dow hasn't had an up week since the week ended Sept. 12, while the S&P500 and Nasdaq last turned in a winning weekly performance the following week, which ended Sept. 19.
U.S. stock market paper losses came to about $800 billion for the week, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.
Jason Weisberg, a New York Stock Exchange trader for Seaport Securities, contends the selling has been overdone.
"Technically we're way oversold," he said. "We have these downdrafts on very light volume. But all that being said, historically speaking this is all unprecedented."
The panicky feeling ahead of the opening bell came after Japan's Nikkei stock average fell a staggering 9.60 percent. In Europe, Germany's benchmark DAX index lost 4.96 percent, France's CAC40 dropped 3.54 percent while Britain's FTSE 100 sank 5 percent after the government said its gross domestic product fell 0.5 percent in the third quarter, putting the country on the brink of recession.