(RTTNews) - After turning in a strong performance last week, stocks moved sharply lower over the course of the trading day on Monday. The major averages showed a steep drop at the open and continued lower throughout much of the session.

The initial weakness came as investors took profits following the substantial gains seen last week, with the markets seeing further downside as investors reacted to some negative economic news as well as speeches from both Fed Chairman Bernanke and Treasury Secretary Paulson.

On the economic front, the Institute for Supply Management’s index of activity in the manufacturing sector fell to 36.2 in November from 38.9 in October, with a reading below 50 indicating a contraction in the sector. With the decrease, the index fell to its lowest level since May of 1982.

“Global manufacturing is in its worst recession since at least 1980,” said Chris Low, chief economist at FTN Financial. “In the U.S., the recent strength of the dollar is a problem, but weak international demand and terrible domestic car sales are even bigger issues.”

Separately, the Commerce Department released its report on construction spending in the month of October, showing that spending fell by more than expected amid a notable decrease in spending on residential construction.

Speaking at an event hosted by the Greater Austin Chamber of Commerce in Austin, Texas, Federal Reserve Chairman Ben Bernanke said that further interest rate cuts from already low levels were “certainly feasible,” but he warned that the impact from any additional rate cuts would be “limited.”

Bernanke said that the financial markets are better off for the moves authorities have taken lately, but he noted that absolute stability would take some time. He also predicted that the economy would likely remain weak for some time.

“Regarding interest rate policy, although further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest rate policies to support the economy is obviously limited,” Bernanke told the audience.

In his speech, Treasury Secretary Henry Paulson said that government actions taken to combat the financial crisis have made progress, though he noted that there is still much improvement that needs to be made.

Paulson, who will be replaced as Treasury Secretary by New York Fed President Timothy Geithner when the next presidential administration takes over in January, also said that the government remains active in developing new programs.

Among the measures on the table, the Treasury Department is still looking into ideas to mitigate foreclosures.

The major averages saw some further downside going into the close of trading, ending the day at or near their worst levels of the day. The Dow closed down 679.95 points or 7.7 percent at 8,149.09, the Nasdaq closed down 137.50 points or 9.0 percent at 1,398.07 and the S&P 500 closed down 80.03 or 8.9 percent at 816.21.

Sector News

A variety of sectors showed substantial downward moves, reflecting broad based weakness in the markets. With commodities prices showing steep declines amid concerns about the outlook for demand, resource stocks turned in some of the market’s worst performances.

Oil stocks posted particularly steep losses, as the price of oil fell by $5.15 to $49.28 a barrel after OPEC delayed a decision to cut production. The weakness in the sector contributed to a 10.8 percent loss by the Amex Oil Index.

Within the oil sector, one of the biggest losers was Sunoco (SUN), which closed down 11.4 percent. The decline pulled the stock well off of the two-month closing high that it set on Friday.

Also reacting to the decline in crude oil prices, the Philadelphia Oil Service Index was down 15.9 percent at the close. Steel, gold, and natural gas stocks also posted notable losses amid the drop in commodities prices.

Outside of the resource sector, financial stocks also saw significant weakness, as traders expressed renewed concerns about the outlook for the financial industry. Real estate, housing, and computer hardware stocks also came under considerable selling pressure.

Dow Components

All thirty of the Dow components ended the session trading in negative territory after seeing notable declines throughout the day.

One of the most steepest losses came from Bank of America (BAC), which ended the day down 20.9 percent, pulling back well off the two-week closing high that it set on Friday.

Massive losses were also posted by Citigroup (C), American Express (AXP), and JP Morgan (JPM). Shares of Citigroup closed down 22.2 percent, while shares of American Express and JP Morgan ended Monday’s session down 15.7 percent and 17.5 percent, respectively.

Dow component Johnson & Johnson (JNJ) closed down 5.6 percent after the company agreed to acquire medical products supplier Mentor Corp. (MNT) for $1.07 billion in cash. Johnson & Johnson will pay $31 for each shares of Mentor, nearly double Mentor’s closing price on Friday.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mixed on Monday, with Japan’s Nikkei 225 Index posting a loss of 1.4 percent by the end of the day, while Hong Kong’s Hang Seng Index closed 1.6 percent higher.

Meanwhile, the major European markets ended the day sharply lower, at their worst levels of the day. The French CAC 40 Index and the German DAX Index closed down 5.6 percent and 5.9 percent, respectively, while the U.K.’s FTSE 100 Index posted a loss of 5.2 percent.

In the bond market, treasuries closed sharply higher after Bernanke suggested that the Fed could purchase longer-term treasuries in substantial quantities in order to spur demand. Subsequently, the yield on the benchmark ten-year note closed down 23.8 basis points at 2.719 percent, a new multi-decade closing low.

Looking Ahead

While there are no major economic reports due to be released on Tuesday, traders are likely to keep an eye on comments from Philadelphia Federal Reserve President Charles Plosser, who is scheduled to speak about the U.S. economic outlook at 12:30 pm ET.

In corporate news, Sears Holdings (SHLD), Staples (SPLS), and Beazer Homes (BZH) are among the companies that are due to report their quarterly results before the start of trading on Tuesday.

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Posted in Categories: Economy, Releases.

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