BAD NEWS BEFORE THE BELL

On Tuesday, the die for the trading day was cast when China's Shanghai Composite Index dropped almost 9 percent on fears that the government would crack down on speculation that has driven stock prices there to record highs.

Before Wall Street's opening bell, there was more bad news. A government report showed a much bigger-than-expected drop of 7.8 percent in January's new orders for U.S.-made durable goods, which added to concerns about a slowdown in economic growth. Durable goods are big-ticket items, including home appliances and computers, intended to last three years or more.

"Durable goods are a key forward-looking indicator of business activity, so the broad-based drop that we saw today means that confidence in the economy is weaker across a number of sectors and the chance of an investment-led recession is quite a bit higher," said Andrew Bernard, professor of International Economics at the Tuck School of Business in Dartmouth, New Hampshire.

FEAR FACTOR SKYROCKETS

In one sign of how shaken investors were, the CBOE Volatility Index, known as Wall Street's "fear gauge," surged 70.5 percent to a session high at 19.01 and then retraced its steps a bit to end at 18.31, a gain of 64.2 percent.

Howard Silverblatt, senior index analyst at Standard & Poor's, said the stock market's tumble wiped out more than $430 billion in the S&P 500 stock values, almost matching the value of stock buybacks by S&P 500 companies last year.

He estimated that for the overall market, the loss was $600 billion.

All 30 stocks in the blue-chip Dow average finished in the red as investors unloaded shares of companies with big exposure to the Chinese economy.

During the session, all three major U.S. stock indexes broke below their 60-day moving averages -- a sign that the momentum that has carried U.S. stocks through a record run higher from July has begun to stall.

Exxon Mobil Corp. was the biggest decliner in both the Dow and the S&P 500, with its stock falling 4.7 percent, or $3.57, to $71.83 on the New York Stock Exchange.

Caterpillar Inc., the U.S. heavy equipment maker that does extensive business in China, dropped 3.6 percent, or $2.43, to $64.83, also on the NYSE.

The Philadelphia Stock Exchange's semiconductor index ended down 3.1 percent, its second-sharpest one-day slide this year.

Shares of technology bellwether Cisco Systems Inc. skidded 5.6 percent, or $1.53, to $25.71. The stock was among the biggest losers in both the Nasdaq 100 and the S&P 500.

A rare bright spot on the Big Board was RadioShack Corp., up 11.9 percent, or $2.68, at $25.13. The stock was the NYSE's No. 1 percentage gainer after reporting higher quarterly profit, due to cutting costs and closing unprofitable stores.

Volume was heavy on the NYSE, where about 2.41 billion shares changed hands, well above last year's estimated daily average of 1.84 billion. On the Nasdaq, about 3.02 billion shares traded, sharply exceeding last year's daily average of 2.02 billion.

On the Nasdaq, the number of advancing issues totaled just 281 stocks -- the smallest number in about 10 years. In contrast, a total of 2,832 stocks fell on the Nasdaq -- with the decliners outnumbering the advancers by a ratio of slightly more than 10 to 1.

On the NYSE, more than six stocks fell for every one that rose. A total of 2,949 NYSE stocks declined, while only 451 shares rose and 104 issues were unchanged.

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