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War jitters rock Wall Street

Spain's Ambassador Inocencio Arias, left, U.K. Ambassador Jeremy Greenstock, second from left, and U.S. Ambassador John Negroponte, right.
Spain's Ambassador Inocencio Arias, left, U.K. Ambassador Jeremy Greenstock, second from left, and U.S. Ambassador John Negroponte, right.

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NEW YORK (CNN/Money) -- U.S. stocks took a battering Monday as a new U.N. resolution posed by the United States and Britain led to widespread fear on Wall Street that war with Iraq was creeping ever closer.

Treasury bonds, oil and gold all rose as investors sought safe havens for their money, while the dollar ended mixed.

The Dow Jones industrial average (down 159.87 to 7858.24) and the Nasdaq composite (down 26.64 to 1322.38) both sank 2 percent, while the S&P 500 index (down 15.59 to 832.58) fell 1.8 percent.

The selloff came after solid advances Friday capped a second week of gains for the market, despite worries over a possible U.S.-led attack on Iraq that have been vexing investors for weeks.

"It continues to be a tug of war with all of the uncertainty going on with respect to the Middle East," said Brett Gallagher, head of U.S. equities at Julius Baer.

"I don't think [the markets] are going to see long-term effects after a war in the Middle East. The die has been cast -- we are going into Iraq. The U.S. is looking to force a vote to show they've got a majority."

Forecasting declines

Wall Street stocks had their biggest fall of the month Monday on war jitters
Wall Street stocks had their biggest fall of the month Monday on war jitters

After Monday's retreat, Tuesday doesn't look to be much better. Economists and market analysts are forecasting declines in consumer confidence and home sales, as well as Home Depot earnings, so the early signals don't bode well for much of a rebound.

Investors, already reluctant to commit fresh funds to stocks given fears of war and the sluggish U.S. economy, grew particularly nervous about the latest developments at the United Nations Monday.

The United States, Britain and Spain submitted a new resolution to the Security Council that does not include deadlines or an explicit threat of military force, but states that the government of Iraqi President Saddam Hussein has failed to comply with previous U.N. resolutions that warned of "serious consequences" if it refused to give up its pursuit of weapons of mass destruction.

The White House said it wants action on the document "in short order." A vote on the new resolution could come in the next three weeks.

Uncertainty has kept trading volume low and stock prices slowly shrinking for months. Only about 1.2 billion shares changed hands on the New York Stock Exchange Monday, as declining stocks beat advancing stocks by better than a 2-to-1 margin. On the Nasdaq, losers also outweighed winners better than 2-to-1, on volume of 1.2 billion shares.

On Tuesday, investors will get a reading on consumer confidence for February after the opening bell. Economists surveyed by Briefing.com expect a reading of 77, down from 79 in January. Existing home sales probably fell to an annual rate of 5.80 million in January, from 5.89 million in December, according to average forecasts.

AOL Time Warner (down $0.54 to $10.06), the parent of CNN, was the second most active stock on the NYSE, losing more than 5 percent and weighing on markets. The Wall Street Journal reported Monday that the company is in preliminary talks to sell its Warner Music operations to EMI for between $3 billion and $4 billion.


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