Image: Lodewick
Trader Kevin Lodewick, right, observes a moment of silence on the floor of the New York Stock Exchange Wednesday at 9:59 a.m., the time the first of the World Trade Center buildings collapsed one year ago.

U.S. stocks extended their losses into a second week Monday, as fear of more acts of terrorism against the United States and its allies hit the world’s biggest financial markets.

The catalyst for Monday's early sell-off was a statement, purportedly from the Al-Qaida militant group, that claimed responsibility for two car bombings in Turkey over the weekend that killed 24 people and fanned fears of renewed geopolitical insecurity

The statement, sent to a London-based Arabic-language newspaper, also vowed more suicide bombings against the United States, Japan, the United Kingdom, Italy and Australia.

The news weighed on Asian and European markets and contributed to Wall Street’s early sell-off said Peter Cardillo, chief strategist at Global Partners Securities. Monday’s losses also came despite a handful of better-than-expected reports on the economy, he added.

The terror fears also hit a U.S. market already worried about stock valuations.

After an eight-month run up from lows hit in early March, the market’s sideways action in recent weeks is a period of consolidation according to some Wall Street strategists. Others say a change in leadership is at work, with investors moving funds out of the rally’s best-performing stocks and into ones that didn’t do as well, such as drug stocks.

“You have stocks valued very richly, and any little hiccup in the economy could be a problem,” said Stephen Massocca, head of trading at investment bank Pacific Growth Equities.

Richard Cripps, chief market strategist at Legg Mason, said Monday’s sell-off was part of a pattern of profit-taking seen in the market in recent weeks. “Lots of investors have had a very good year and don’t want to see those profits go away,” he said on CNBC.

Stocks fell steadily throughout the morning, with the Dow Jones industrial average down 139 points by early afternoon. The index repaired most of its losses in afternoon trading, closing Monday down 57.85 points at 9,710.83.

The broader market also slid, with the Standard & Poor’s 500-stock index finishing Monday off 6.72 points at 1,043.63. And the tech-laced Nasdaq Composite index fell 20.65 points to 1909.61, extending Friday’s 37-point slump.

Last week, the Dow Jones industrial average fell 0.4 percent and the S&P 500-stock index sagged 0.3 percent. The Nasdaq Composite fell a hefty 2.1 percent.

Major Market Indices

U.S. Business inventories rise
Before Monday’s open, the government said U.S. business inventories unexpectedly rose 0.3 percent in September, boosted by sales of unsold goods. Separately, the Federal Reserve Bank of New York said its Empire State survey of manufacturing activity in November set a record high of 41, indicating conditions for New York manufacturers have improved substantially.

Shares of Toys R Us fell 12.2 percent to $11.18 after the toy company reported a wider third-quarter loss amid disappointing sales. Shares of Lowe’s also fell, even though the home improvement retailer posted a 33-percent rise in quarterly profit and raised its earning outlook. And retail giant Wal-Mart Stores said same-store sales are on track to meet its November forecast.

The latest mutual fund trading scandal involves Morgan Stanley, the U.S. investment bank, which agreed on Monday to pay $50 million to settle federal charges it failed to tell investors about compensation received for selling certain mutual funds.

Separately, investment bank Bear Stearns said it had fired staff in connection with problematic mutual-fund trading activity. And discount broker Charles Schwab said it has discovered a “limited number” of questionable traded at its mutual fund unit.

The St. Paul Companies said Monday it would buy Travelers Property Casualty for about $16 billion to form the second largest U.S. commercial insurance company. The combined company, to be called The St. Paul Travelers Companies, will have total shareholders’ equity of $20 billion.

Overseas, the naming of Japan as a possible terrorism target dragged the benchmark Nikkei stock average down 3.7 percent, yanking it below the psychologically important 10,000 mark. In Europe, the largest losses were seen on Germany’s DAX index, which fell 3.2 percent, while the French CAC-40 index shed 2.6 percent.

The dollar was mixed, trading at 1.1799 dollars to the euro and 108.58 yen to the dollar, compared with 1.1782 dollars and 108.31 yen late Friday in New York.

Reuters contributed to this story.

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