NEW YORK - A surprisingly bleak forecast for the world economy pushed stocks to their biggest loss in two months.
Major stock indexes tumbled by more than 2 percent yesterday, after the World Bank estimated the global economy would shrink 2.9 percent in 2009. It previously predicted a 1.7 percent contraction.
The assessment punctured hopes of the last few months that the economy was starting to emerge from recession. Investors began driving stocks sharply higher in early March, encouraged by modest improvements in housing, manufacturing, and even unemployment.
The outlook from the World Bank, a global lender based in Washington, also weighed on the prices of oil, metals, and other commodities. Those price drops in turn sent energy and metal producers' shares falling.
Hugh Johnson, chief investment officer of Johnson Illington Advisors, said the downbeat prediction confirmed fears that had been building in the market for two weeks.
"The forecast by the World Bank just dramatized that the market may have overstated what's coming for the economy," he said.
The stock market is coming off its first weekly loss in more than a month after mixed economic readings last week.
The Federal Reserve today will begin its two-day meeting on monetary policy. The central bank is widely expected to keep its key funds rate near zero, but investors want to know whether policymakers will say the economy is recovering.
The Dow fell 200.72, or 2.4 percent, to 8,339.01, its lowest finish since May 27. It was the biggest drop for the blue chips since losing 290 points, or 3.6 percent, on April 20 as investors worried about the soundness of bank balance sheets.
The Dow has fallen for five of the last six days and remains down for June.
The Standard & Poor's 500 index fell 28.19, or 3.1 percent, to 893.04, erasing its advance for the year. The Nasdaq composite index fell 61.28, or 3.4 percent, to 1,766.19.
A gauge of stock-market volatility known as Wall Street's "fear index" spiked. The VIX rose more than 11 percent yesterday, its biggest one-day gain since April.
Benchmark crude for August delivery fell $2.52 to settle at $67.50 a barrel on the New York Mercantile Exchange. Gold prices also slid.
Shares of companies that produce commodities fell. Oil company Chevron Corp. fell $2.30, or 3.4 percent, to $65.76, while aluminum producer Alcoa Inc. fell 98 cents, or 8.9 percent, to $10.02.
Few areas were spared the selling yesterday, but investors moved toward industries like consumer staples and utilities that are expected to offer shelter in a tough economy. Procter & Gamble, the maker of Tide detergent and Crest toothpaste, slipped 8 cents to $50.56. Duke Energy Corp. rose 24 cents, or 1.7 percent, to $14.65.
The dollar was mostly higher against other major currencies.
The Russell 2000 index of smaller companies fell 19.91, or 3.9 percent, to 492.81.
Japan's Nikkei stock average rose 0.4 percent. Britain's FTSE 100 fell 2.6 percent, Germany's DAX index fell 3 percent, and France's CAC-40 fell 3 percent.