NEW YORK -- Stock prices collapsed yesterday, with the Dow Jones industrial average declining 120.31 points to 2,943.20, mostly in the last hour of the session.
"It was an awful end to a bad day," said Brad Weekes, a trader at Donaldson Lufkin & Jenrette.
The plunge was the fifth-worst on record and the most severe since the minicrash of Oct. 13, 1989, when an aborted leveraged buyout effort for United Airlines signaled a cessation in debt-financed deals.
With no major news released yesterday, analysts attributed the debacle to an array of causes, including frustration about the economy, a burst in speculative bubbles, business turmoil in the Soviet Union, and a general panic triggered by congressional efforts to cap credit card rates that many fear could undermine banks and broadly curtail credit.
Although banks stocks were hit particularly hard, the market's -- decline was broad and actually began in many sectors that have recently witnessed the fastest appreciation -- biotechnology stocks, then small companies, then large, so-called "growth companies" such as pharmaceutical manufacturers and selected retailers that have had growing profits despite the recession.
Indeed, the NASDAQ index for small stocks, which had reached a new record as recently as Wednesday, suffered its fourth-worst decline, dropping 4.24 percent to end down 23.55 points at 531.29.
"We've seen a lot of froth, particularly in the over-the-counter market," said Howard Ward, a managing director of Scudder, Stevens & Clark.
"A correction is not a surprise," Mr. Ward said. "We may have not seen the end."
For many of the largest banks, declines in their share prices yesterday continued a trend begun earlier in the week after a vote by the Senate that would effectively cut credit card interest rates from their current average level of more than 18 percent to 14 percent.
The proposal has yet to be passed, and in the wake of yesterday's market activity, both the Federal Reserve Board and the Bush administration appeared to be making efforts to curtail it.
Security analysts, though, began preparing second sets of bank earnings estimates that assume the new guidelines are passed. The results are huge losses for some of the largest institutions and widely depressed earnings for other major credit card issuers, including MBNA, the former credit card subsidiary of MNC Financial, and Sears, owner of the Discover card.
"This has enormous implications," said David E. Nelson, senior vice president for Investment Counselors of Maryland.
"The banking system is in a precarious condition, and what is being discussed is the destruction of the profitability of the most profitable business they have," he said.
"That's not only harmful to banks but to major retailers," he continued. The high rates permit financial institutions to absorb loan losses from marginal borrowers, he said, so without the high rates, lending to such people would have to be sharply curtailed.
"Banks may cut off their credit cardholders before Christmas," Mr. Nelson said. "Won't we have a merry Christmas then?"
The broad drop in share prices was exaggerated by a barrage of computer-driven program trades loosely tied to the expiration of a widely used option contract, the Major Market Index, that roughly replicates the Dow Jones industrial average.
"There were just tons of program," Mr. Weekes said.
Almost five issues declined for every one that rose, suggesting an unusually pervasive slide. Volume was 236 million shares, above average but within sight of many less turbulent days.
"You wouldn't have expected such a drop on such low volume," Mr. Ward said. "It was not a case of buckets after buckets of stock dumped on the market. There just wasn't much liquidity."
At the New York Stock Exchange, typically the epicenter of stock quakes, activity was far from frenetic throughout most of the day and even at the end remained calm. "It wasn't a happy session, but it was orderly and most of the big shareholders were not involved," said Robert Fagenson, a specialist on the floor of the exchange with Fagenson & Co.
Still, the market's upheaval comes as a euphoric rise in share prices that began in the depth of the Persian Gulf crisis has shown signs of stalling.
"It's just another little crack in this mini-bull market," said Richard McCabe, an analyst at Merrill Lynch. "I think it's at a late stage and may be topping off."
Among touted stocks that fell, Merck dropped 7 5/8 , to 137; Wal-Mart 3 1/4 , to 47 3/8 ; US Surgical 5 5/8 , to 97; and Immune Response 5, to 35 3/4 .