Red Monday on Wall St

NEW YORK (CNNMoney.com) -- The new month got off to a dismal start as stocks tumbled Monday morning on dismal manufacturing reports added to fears of a prolonged recession.

The Dow Jones industrial average (INDU) lost 380 points - or more than 4% - an hour into the session. The Standard & Poor's 500 (SPX) index lost 5% and the Nasdaq composite (COMP) gave up 4.7%.

Stocks gained in a holiday-shortened trading week after President-elect Obama announced his economic team and the government bailed out Citigroup. The Dow and S&P 500 rose Friday for the fifth consecutive session, the best streak since July 2007

Positive reports on Black Friday, the start of the critical holiday-shopping period, also helped stocks late last week. But the advance petered out Monday as investors eyed the day's economic news and worried that the Black Friday momentum was unsustainable.

Economy: The morning economic news was dismal, demonstrating that a recession is indeed underway even if it hasn't been officially declared.

The Institute of Supply Management said its November manufacturing index fell to a 26-year low of 36.2 from 38.9 in October. That was worse than what economists were expecting, according to a survey from Briefing.com.

October construction spending fell 1.2% versus a flat reading in the previous month. Economists thought spending would drop 1%.

Global economic news was pretty grim as well, with manufacturing surveys in Britain and the euro zone showing a steep slowdown. A reading on China's manufacturing survey was equally worrisome.

Asian markets ended in mixed territory and European markets tumbled in the afternoon.

Retail sales: Shoppers came out in droves over the weekend, motivated by pent-up demand and deep discounts, but the surge is not expected to last.

Including "Black Friday," the day after Thanksgiving, shoppers spent $41 billion in the four-day holiday weekend, according to the National Retail Federation (NRF), an industry trade group. The average shopper spent $372.57, up 7.2% from a year ago.

However, overall 2008 holiday spending is expected to rise just 2.2% from a year ago, the smallest gain in six years.

Early predictions are for "Cyber Monday" online shopping sales to be pretty flat with a year ago.

Consumer spending drives two-thirds of economic growth, and the pull back has exacerbated the economic slowdown.

Automakers: GM (GM, Fortune 500) and Ford (F, Fortune 500) gained on growing bets that they, along with Chrysler, will receive a government bailout. The industry's first pitch to Congress was rebuffed, but there is increased speculation that its second pitch will be more successful.

The companies have until Tuesday to submit proposals for how they would use $25 billion in taxpayer money to make their companies "viable." The House Financial Services Committee is holding a hearing Friday; the Senate Banking Committee is expected to host a hearing this week, too.

Other movers: Johnson & Johnson (JNJ, Fortune 500) said it will buy breast implant maker Mentor (MNT) for $1.07 billion, or $31 a share, nearly double the company's closing price from Friday. Dow stock J&J fell 2%, while Mentor gained 90%.

Other markets: The dollar gained versus the euro but fell against the yen.

U.S. light crude oil for January delivery fell $3.88 to $50.55 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery fell $9.20 to $811.30 an ounce.

Gasoline prices continued the fall to nearly four-year lows, with gas down 1.7 cents to a national average of $1.868 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA. Prices have been sliding for more than two months, losing almost $2 a gallon or 51%.