NEW YORK — A surprisingly bleak forecast for the world economy sent stocks tumbling to their lowest level this month.
Major stock indexes dropped by more than 2 percent Monday, sending the Dow Jones industrial average down 201 points, after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent contraction.
Investors began buying up stocks in March on hopes that the economy was poised to begin recovering. The grim assessment from the World Bank runs counter to hopes that have been building for months that a gradual recovery was beginning.
The dampened economic outlook also weighed on the prices of oil, metals and other commodities. Those commodity price drops in turn sent energy and metal producers' shares falling.
Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, said the downbeat economic prediction confirmed fears that have been building in the market for two weeks.
"The forecast by the World Bank just dramatized that the market may have overstated what's coming for the economy," he said.
The stock market is coming off its first weekly loss in more than a month after mixed economic readings last week. No major economic data was released Monday, but traders will get reports this week on new and existing home sales, durable goods orders, gross domestic product and personal incomes and spending.
The Federal Reserve will also be in the spotlight after its two-day meeting on monetary policy that ends Wednesday. The central bank is widely expected to hold its key funds rate steady near zero, but investors want to know whether policymakers will say the economy is recovering or still in need of aid.
The Dow fell 200.72, or 2.4 percent, to 8,339.01, its lowest finish since May 27. It was the biggest drop for the blue chips since losing 290 points, or 3.6 percent, on April 20 as investors worried about the soundness of bank balance sheets.
The Dow has fallen for five of the last six days and remains down for June.
The Standard & Poor's 500 fell 28.19, or 3.1 percent, to 893.04, also leaving the index with its biggest slide since April 20 and erasing its advance for the year. The Nasdaq fell 61.28, or 3.4 percent, to 1,766.19.
After Monday's drop and a 3 percent slide last week, the Dow is down 5 percent for the year. The Nasdaq, however, remains up by 12 percent in 2009.
The market is selling off on the uncertainty of what lies ahead, said David Kotok, chairman and chief investment officer of Cumberland Advisors. "The picture's not clear. You've got a market that's acting just that way."
The Russell 2000 index of smaller companies fell 19.91, or 3.9 percent, to 492.81.
About six stocks fell for every stock that rose on the New York Stock Exchange, where volume came to 1.4 billion shares, down from 2.1 billion Friday.
Overseas, Japan's Nikkei stock average rose 0.4 percent. Britain's FTSE 100 fell 2.6 percent, Germany's DAX index fell 3 percent, and France's CAC-40 fell 3 percent.