The S&P 500, which had gained more than 19% in its previous five sessions, declined 8.9% on Monday, losing 80 points to close at 816. The percentage drop was the second-worst since 1987.

The declines came after a raft of worrisome manufacturing data from around the world and a report from the U.S. National Bureau of Economic Research saying the U.S. economy has been in recession since December 2007. The Bureau is the official tracker of U.S. business cycles.

The United States, China, Europe and the UK all released their key manufacturing indexes on Monday, and together they painted a dire picture of global economic activity.

The U.S. ISM manufacturing survey fell to 36.2 from 38.9, marking the lowest reading since 1982. China's purchasing managers index fell at a record pace as it dropped to 38.8 from 44.6 in November. Similar manufacturing indexes from the euro zone and UK fell to all-time lows.

The Dow Jones industrial average closed down 680 points, or 7.7%, to 8149 and the Nasdaq closed down 138 points, or 9.3%, to 1398. Toronto's S&P/TSX composite index closed down 864 points, or 9.3%, to 8406.

The impressive declines in Treasury yields continued on Monday. They jumped in the afternoon when Federal Reserve Chairman Ben Bernanke raised the possibility of the U.S. government driving down borrowing costs by buying longer-dated Treasuries. Markets also moved to price in aggressive interest rate cuts after Bernanke said further rate cuts are "certainly feasible."

Treasury yields closed at record, or long term, lows. U.S. two-year yields were down 7.1 bps to 0.91%, with five-year yields down 19.0 bps to 1.72%, 10-year yields down 17.0 bps to 2.75% and 30-year yields down 20.5 bps to 3.23%. The Eurodollar March 09 contract was up 4.5 ticks to 98.13. The yield curve was flatter, with the 10/2-year spread down 9.8 bps to 183.91 bps.

Yields on two-year Canadian government bonds were down 11.5 bps to 1.59%, with five-year yields down 18.0 bps to 2.26%, 10-year yields down 18.5 bps to 3.14% and 30-year yields down 15.3 bps to 3.75%. The December 08 BAX contract was up 1.0 tick to 98.14.

In Germany, returns on two-year German bonds were down 6.5 bps to 2.12%, with five-year yields down 13.3 bps to 2.52%, 10-year yields down 9.3 bps to 3.16% and 30-year yields down 7.8 bps to 3.64%.

Yields on UK two-year bonds were down 16.6 bps to 2.04%, with five-year yields down 15.2 bps to 3.05%, 10-year yields down 10.8 bps to 3.66% and 30-year yields down 4.7 bps to 4.07%.

Crude oil was down more than $5 on Monday after OPEC failed to deliver a rumoured production cut at a weekend meeting in Cairo.

WTI crude traded at the Intercontinental Exchange was down $5.67 to $48.76 per barrel.

In foreign exchange, the Canadian dollar is one of the strongest performing currencies following a stronger-than-expected GDP report.

The economy expanded at a 1.3% annualized pace in the third quarter, better than the 1.1% expected. Second-quarter growth was upwardly revised to +0.6% from +0.3%.

C.J. Gavsie, managing director of corporate and institutional sales for FX products from BMO Capital Markets, said everything today is pointing to a weaker Canadian dollar. But some M&A deals, which are closing this week, could be stopping a sharp selloff.

"We are strong believers that we should see a weaker CAD," he said.

The Canadian dollar was down 0.0034 to 0.8036 against the U.S. dollar (1.2443 USD/CAD) and down 2.22 to 74.86 against the yen.

The U.S. dollar was down 2.37 to 93.16 against the yen and the Dollar Index was up 0.207 to 86.724.

The euro was down 0.0074 to 1.2617 against the U.S. dollar, down 0.0026 to 1.5701 against the Canadian dollar, up 0.0217 to 0.8472 against the pound sterling and was lower by 3.70 to 117.52 against the yen.

The pound sterling was down 0.0479 to 1.4895 against the U.S. dollar and down 0.0527 to 1.8525 against the Canadian dollar.

The front month gold contract at the Chicago Board of Trade was down $40.30 to $776.80 per ounce.

The day ahead is quiet in terms of major economic data but features secondary reports on U.S. retail sales from ICSC and Redbook. There is also a speech from Fed governor Charles Plosser on U.S.-China dialogue.

All data taken at 4:36 p.m. EST.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it

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