Stocks Drop Again; Investors Wary Of European Crisis

NEW YORK — The stock market saw a huge sell-off Thursday, with major U.S. indexes falling nearly 4 percent, as investors worried about weak U.S. economic data and the possibility that Europe's debt crisis might spread.

The Dow Jones industrial average closed down 376 points, or 3.6 percent, at 10.068, its biggest one-day drop since February 2009. Meanwhile, interest rates fell sharply in the Treasury market as investors once again sought the safety of government debt.

With Thursday's drop, the Standard & Poor's 500 is down almost 12 percent from its 2010 high close of 1,217.28, reached April 23. The means the stock market has officially had a correction, a pullback of 10 percent or more from a recent high. It's the first correction since stocks recovered from the 12-year lows they hit in March 2009.

The S&P 500 closed down 43 points, or 3.9 percent, at 1,071. The Nasdaq composite index fell 94 points, or 4.1 percent, at 2,204.

Only 153 stocks rose on the New York Stock Exchange while almost 3,000 fell. Volume came to a very heavy 2.1 billion shares.

The number of people filing new claims for unemployment benefits unexpectedly rose last week by the largest amount in three months, while an index of leading economic indicators dropped for the first time in more than a year, suggesting the recovery could lose steam.

Applications for unemployment benefits rose to 471,000 last week, up by 25,000 from the previous week, the Labor Department said Thursday. It was the first increase in five weeks and the biggest jump since a gain of 40,000 in February.

The total was the highest since new claims reached 480,000 on April 10. It also pushed the average for the last four weeks to 453,500.

"Although no one expects this volatile series to go in one direction every single week, this is clearly a disappointment," said Jennifer Lee, senior economist at BMO Capital Markets.

World markets fell sharply Thursday as sentiment continued to be hit by concerns about the continent's debt crisis and the rise in U.S. jobless claims. The worries left most of the world's leading indexes now trading below where they started 2010.

In Europe, the FTSE 100 index of leading British shares closed down 84.95 points, or 1.7 percent, at 5,073.13 while Germany's DAX slid 120.79 points, or 2 percent, to 5,867.88. The CAC-40 in France ended 79.15 points, or 2.3 percent, lower at 3,432.52.

The European debt crisis continues to be the main point of interest in the markets and fears are growing that it may prove to be the catalyst to a renewed downturn in global growth, if not an outright slide back into recession - while stocks tank, oil prices slid below $70 a barrel and ten-year U.S. Treasury yields dropped to a 2010 low.

"Sentiment is awful and confidence has been trashed," said David Buik, markets analyst at BGC Partners.

Thursday had started off fairly calmly, particularly in Europe, but investors remain spooked by Tuesday's decision by Germany's regulator to ban so-called naked short-selling of eurozone government bonds and shares in ten key German financial institutions until March 31.

In a typical short sale, a trader sells borrowed shares in hopes of buying them cheaper later and profiting on the difference. A "naked" short is when traders sell shares without borrowing them first. It's one way of betting a financial asset will fall in value.

Investors were unsettled partly because Germany's move against the practice was unilateral without any consultation with its partners in the eurozone, and suggested to some an uncoordinated policy response.