Economic fears slam stocks

World Bank cuts global growth forecast, triggering a big selloff. Dow falls 200 points, S&P 500 and Nasdaq both lose more than 3%.

NEW YORK (CNNMoney.com) — Stocks sank Monday, ending at three-week lows, as the World Bank’s weak outlook on global growth and a selloff in commodity prices sent investors heading for the exits.

Oil and gold prices slumped and the dollar was mixed. Treasury prices rallied as investors sought safety, sending the corresponding yields lower.

The Dow Jones industrial average (INDU) fell 200 points, or 2.4%. The S&P 500 (SPX) fell 28 points, or 3%, and the Nasdaq (COMP) fell 61 points, or 3.4%.

The World Bank cut its 2009 forecast, predicting that global growth will shrink by 2.9% versus its earlier forecast for a 1.7% contraction. Global trade is expected to plummet 9.7% this year, it said. Developing countries have been especially hard, with the exception of booming China and India.

The forecast sent European markets tumbling as well, while Asian markets ended higher.

“The World Bank news today was pretty major, but it’s not just today’s news that is causing the selling,” said Gary Webb, CEO at Webb Financial Group.

He said that stocks have been falling for several sessions now as investor sentiment has gotten more negative.

“If we don’t see something good here in the next few days to cause a rebound, then I think we’ll see a bigger pullback,” he said. “Even one positive report would help. It wouldn’t send stocks flying but it would help limit the decline.”

Stocks were mixed Friday at the end of the first down week in a month on Wall Street. A three-month rally propelled the S&P 500 by as much as 40% off of 12-year lows. But the advance has lost steam lately as investors have worried that the recession may stretch on longer than anticipated.

“Every time there’s a blip economically, the market sells off,” said Ron Kiddoo, chief investment officer at Cozad Asset Management.

“But I also think we were ready for a pullback,” he said. “You don’t get 30 or 40 percent rallies without a pullback.”

The S&P 500 has now lost 6.6% off the highs from 2 weeks ago. Kiddoo said he thinks the broad index could end up pulling back a total of 10% to 15% before the selloff runs its course.

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