Dow plunges after S&P downgrade (ext)

NEW YORK (CNNMoney) -- Wall Street had its worst day since the 2008 financial crisis, as fearful investors reacted to the United States losing its coveted AAA credit rating.

All three major U.S. stock indexes sank between 5% and 7%, pushing the Dow below 11,000 for the first time since last November.

U.S. stocks have fallen 15% during the past two weeks.

Though observers said S&P's downgrade shouldn't matter all that much, the market wasn't buying it.

"Investors are having one reaction to the downgrade: sell first and ask questions later," said Paul Zemsky, head of asset allocation with ING Investment Management.

Even if investors dismissed the downgrade, they'd still have to contend with the European debt crisis and rising fears of a new U.S. recession.

Those are the factors that led to a drop of more than 6% last week, the worst since the financial crisis of 2008.

The Dow Jones industrial average (INDU) sank 635 points, or 5.6%, to 10,810.

The S&P 500 (SPX) lost 80 points, or 6.7%, to 1,120.

And the Nasdaq Composite (COMP) dropped 175 points, or 6.9%, to 2,358.

The sell-off was worse than the 512-point drop stocks experienced only three trading sessions ago.

Few companies were spared. All members of the Dow 30 and all members of the S&P 500 traded lower.

S&P's downgrade of the United States' credit rating by one notch to "AA+", removed the world's largest economy from the Triple A-club for the first time in history.

Since the rating cut is unprecedented, nobody can be certain what the ultimate impact will be. One thing that concerns investors is the hundreds of downgrades that are coming as a result of S&P's action. The credit agency cut the credit ratings of government-backed mortgage financiers Fannie Mae and Freddie Mac, dozens of U.S. insurance companies, as well as several municipalities that all had AAA ratings before the U.S. downgrade.

President Obama sought to reassure the public and markets during a midday speech. "The markets continue to reaffirm our credit as among the world's safest," said Obama. "Our challenge is the need to tackle our deficits over the long term. But here's the good news. Our problems are emminently solvable. And we know what we have to do to solve them."

Gold futures for December delivery surged $61.40, or 3.7%, to top $1,713.20 an ounce as investors sought additional safe havens.

The yen and the Swiss franc -- perceived to be two of the world's safest currencies -- rose against the dollar.

The U.S. dollar, also considered a safe haven, managed to gain some ground against the euro and the British pound.

Oil for September delivery dropped $5.60, or nearly 6.5%, to $81.27 a barrel.