The problems that weighed down stocks all summer show no sign of letting up.
U.S. stocks plunged Friday, erasing the week's gains, amid rising fears about fallout from Europe's debt crisis. Seeking safer investments, investors sent the yield on the 10-year Treasury note to the lowest level in five decades.
The resignation of a key official from the European Central Bank revealed deepening disagreement over how to solve Europe's economic problems.
Traders fear that one of Europe's heavily-indebted economies could collapse. That would likely ripple through the global banking system and make it difficult for other European countries facing default to borrow money.
Such an outcome to the European debt crisis could tip the world economy back into recession.
In the U.S., the economy faces slowing growth and a stubbornly high unemployment rate. President Barak Obama presented the nation with a $447 billion jobs program on Thursday night, but it's not clear to traders that the proposal can pass through a divided Congress or whether it will have much impact.
The Dow Jones industrial average had its steepest decline in more than three weeks, a period marked by wild swings in prices and sentiment.
"Markets always vacillate between fear and greed, and today we're coming down pretty much all on the fear side," said Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group.
The Dow at several points approached a 400-point decline in afternoon trading before closing at 10,992, a decline of 303 points, or 2.7 percent.
The Standard & Poor's 500 index fell 31 points, or 2.7 percent, to 1,154. The NASDAQ composite index fell 61, or 2.4 percent, to 2,467.
All three indexes are lower for the week. The Dow is down more than 2 percent. It has fallen in five of the past six weeks, and four of the past five trading sessions.
Nervous investors rushed to buy investments seen as safe, sending Treasury yields to historic lows. The yield on the 10-year Treasury note plunged to its lowest level since the Federal Reserve Bank of St. Louis began keeping daily records in 1962. The yield fell to 1.92 percent from 1.99 percent late Thursday.
Word of the resignation of Juergen Stark, the top economist at the ECB, came shortly after the U.S. markets opened. He was an advocate for higher interest rates. Published reports said he left because he opposed the bank's extensive purchases of debt issued by heavily-indebted member nations.
Stark's departure rattled traders because the U.S. economy is "teetering on the verge of recession," and the outcome in Europe might determine which way it goes, said Andrew Goldberg, market strategist with J.P. Morgan Funds. He said traders are latching onto any piece of news that might signal a positive or negative outcome in Europe.
Banks in Europe hold an unknown amount of bonds issued by heavily-indebted nations such as Greece, Ireland and Portugal. The value of the bonds would quickly diminish if one of those nations defaults. Banks might stop lending to each other because of fears that some might fail.
In that context, Stark's departure from the ECB was seen as "a bit of news that contributes to a worse outcome, so if you're thinking of being a seller, today that's what you are," Goldberg said.
The central bank's troubles give added weight to any decisions from a meeting this weekend in from of financial leaders from the world's most developed economies.
Volatility rushed back into the market on Friday. The CBOE Market Volatility Index, or VIX, rose 18 percent, topping 40. The VIX measures investors' fear about the markets.
Friday's plunge continues a tough quarter for the stock markets. The S&P 500 is down 13 percent since the third quarter started in July. However, it has recovered almost 4 percent since its lowest close this year on Aug. 8.
Analysts said stocks are likely to keep falling because conditions in Europe show little sign of improving. If Europe's economy contracts, U.S. companies will likely be hurt. Half of their revenue comes from overseas, and half of that is from Europe, said Sam Stovall, chief investment strategist with Standard & Poor's in New York.
"Maybe the market has already priced in a very, very soft spot, but it has not priced in quicksand — it has not priced in a recession," he said.
Stovall said recent data make another U.S. recession appear more likely.
But Fort Pitt Capital's Forrest said the sell-off had brought some share prices "within buying range." She said traders have few other places to invest, with Treasury yields near record lows and currency markets gyrating because of fears about the euro.