Renewed worries about Europe’s debt crisis and a sluggish U.S. economy sent stocks spiraling lower in mid-morning trading.
The Dow fell about 470 points at around 10,940, as this week’s gains quickly evaporated. At one point, the blue-chip index was off nearly 500 points.
The S&P 500 and the Nasdaq each tumbled more than 4%.
Treasuries and gold, viewed as safe-haven investments, shot higher, with the precious metal hitting yet another record high above $1,820.
“People continue to downgrade their expectations on growth on a worldwide basis. There’s concern about funding problems,” Michael Mullaney, a money manager at Fiduciary Trust told Bloomberg News.
“That’s making us very nervous here and as such we want to take risk out of portfolios at least for the immediate future.”
The selloff followed declines in European and Asian markets spurred partly by a Wall Street Journal report that U.S. regulators were digging into the books of big European banks’ U.S. units.
The newspaper said the Federal Reserve Bank of New York has asked for more information about whether those units have access to funds needed to operate.
The report deepened concerns that Europe’s debt troubles threaten to spill over to the U.S. banking sector.
Adding to the gloom was a report by Morgan Stanley that called the U.S. and euro zone “dangerously close to recession.”
Morgan Stanley cut its U.S. growth forecast to 3.9% growth from 4.2% for 2011, and to 3.8% from 4.5% for 2012.
The latest economic reports offered little encouragement.
Weekly data showed the number of Americans filing for first-time jobless benefits rose by 9,000 to an unexpectedly high 408,000, the Labor Department said.
Separate reports showed consumer prices ticked higher, factory activity in the Mid-Atlantic region slumped in August, and sales of existing homes slid 3.5% in July.
