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updated 3/23/2004 7:12:04 AM ET 2004-03-23T12:12:04

Stock prices tumbled Monday, with the Dow Jones industrial average dropping 122 points to a new 2004 low after Israel’s killing of the founder of the Palestinian group Hamas added to fears about global security and led nervous investors to sell equities.

Major Market Indices

It was Wall Street’s third losing session in a row and the Dow’s fifth triple-digit loss in the last nine sessions. The blue-chip index saw a sharp sell-off at the open, recovered a little lost ground by midsession, but sagged again in afternoon trading, finishing the day down 121.85 points, or 1.2 percent, and perilously close to the psychologically-important 10,000 level it passed in early December.

“People are becoming more risk-averse in this environment because the risk is hard to quantify, so people are moving away from stocks and into bonds and other instruments,” said Brian Pears, head equity trader at Victory Capital Management, in a CNBC interview.

“Even the war last year was easier to handicap than what’s happening now,” he added.

Israeli helicopters killed Hamas leader Sheikh Ahmed Yassin outside a Gaza mosque Monday, dealing its heaviest blow against the militant group that was behind dozens of suicide bombings.

The killing drew vows of reprisals from Palestinian militants and their supporters, who vowed to carry out a campaign of revenge that would target both Israel and its major supporter, the United States. Previous killings of militants have led to waves of suicide bombings.

Broader stock indices also slid, but held above key support levels.

The Standard & Poor’s 500-stock index finished the day off 14.34 points, or 1.3 percent, but held above 1,075, while the technology-rich Nasdaq Composite index slid 30.56 points, or 1.6 percent, but finished above the 1,900 level.

“From a technical standpoint, we could be in serious trouble if the market doesn’t rebound, or hold at these levels,” noted Peter Cardillo, chief strategist at New York brokerage S.W. Bach.

Cardillo added that another terrorist attack, whether it takes place overseas or in the United States, could negatively impact the U.S. economy by damaging consumer confidence. “This is a global marketplace with consequences for everyone,” he said.

Wall Street's sell-off followed sharp losses on European and Asian markets earlier in the day.

Europe’s main stock indices slid, with Germany’s DAX falling 2.4 percent and Taiwan’s TAIEX index down 6.7 percent after a razor-thin election result prompted political unrest and calls for a recount. Taiwan-related stocks trading on U.S. markets also slumped.

Shares of Taiwan Semiconductor Manufacturing, the world's largest contract chipmaker, fell 8.6 percent to $9.30 on the Big Board. And airlines stocks fell due to downgrades from brokerage houses, worries about a drop in travel due to terrorism and rising fuel prices.

Monday’s turmoil in the Middle East further discouraged equity investors already uneasy about a slow economic recovery and anemic job growth. Geopolitical events have also had investors on edge since a series of devastating train bombings in Madrid on March 11.

Analysts pointed out that, with no major economic news due until week’s end and first-quarter earnings still a month away, the stock market is particularly susceptible to bad news overseas.

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Corporate fundamentals and the underlying economy remain solid, but investors will likely need a string of better-than-expected economic data and earnings to pull out of the correction that has kept the major indexes down for the past few weeks, analysts said.

“Today it’s terrorism, yesterday it might it have been oil prices,” said Hugh Johnson, chief investment officer at First Albany Corp. “Every day now, there’s a reason to worry that forecasts for the economy and earnings are just too optimistic, and tomorrow it’s going to be something else.”

Wall Street derived some comfort from a decline in the price of crude oil, which eased Monday from a 13-year high seen last week as OPEC debated whether to delay a planned production cut.

In Monday's corporate news, shares of Microsoft fell a fraction to $24.50 on news the European Union has backed a proposal to fine the software giant a record 497 million euros ($613.5 million) for abusing its dominance of PC operating systems.

(MSNBC is a Microsoft-NBC joint venture.)

Buyout firm Welsh, Carson, Anderson & Stowe said Monday it has offered to buy the majority stake it does not own in US Oncology for $1.14 billion, sending the cancer treatment company’s share price up 19.2 percent to $15.14.

On the earnings front, Walgreen, the top U.S. drugstore chain, reported a 17 percent increase in quarterly earnings, driven by robust demand for prescription drugs. Its share price fell 2.2 percent to $32.76.

And Carnival, the world's biggest cruise group, said quarterly earnings rose sharply as bookings and prices bounced back from lows caused by Iraqi war fears in early 2003.

Japanese stocks ended lower for a second straight day Monday, with the benchmark Nikkei average losing 0.9 percent.

European shares also fell, as security concerns and a lack of positive corporate news gave investors little reason to buy stocks. Britain’s FTSE 100 was 1.9 percent lower and France’s CAC-40 lost 2.1 percent.

Later this week investors will be watching out for a report on February durable goods orders, due Wednesday, the government’s final fourth-quarter GDP figures, due Thursday, and Friday’s University of Michigan consumer sentiment survey for March.

Each of Wall Street’s main stock indices ended a volatile week on the downside last week, as stocks retreated further from their long-time highs set in the previous two months.

Reuters and the AP contributed to this report.

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