The Dow Jones industrials plunged below 10,000 Tuesday as traders turned away from stocks amid worries about the global economy
and tensions between North and South Korea.
The Dow fell 206.51, or 2.1 percent, to 9,859.76. It closed at 10,066 on Monday and has fallen 1,346 points, or more than 12 percent, from its recent high of 11,205, reached April 26.
Investors also exited the euro and commodities including oil and again sought the safety of Treasurys. That sent yields and interest rates lower. The benchmark 10-year note's yield fell to its lowest level since April 2009.
World stock markets also fell sharply.
A disappointing report on U.S. home prices added to the market's dark mood. The Standard & Poor's/Case-Shiller 20-city home price index fell 0.5 percent in March from February, a sign that the housing market remains weak even as mortgage rates are near historic lows. There are concerns that last month's expiration of the government's home buyer tax credit will hurt sales in the coming months.
A better-than-expected report on consumer confidence had no lasting effect on trading. The Conference Board's consumer confidence index rose for the third straight month, climbing to 63.3 in May from 57.7 last month.
Investors are not focusing as much on current signs of growth, but instead trying to gauge where the global economy will be later this year. Pessimism, particularly about Europe, has replaced the hopeful tone the market took early in the year.
"Market participants feel like they're walking on eggshells," said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y. "Every small piece of potentially bad news is being exaggerated and mentally being fast-forwarded to the worst-case scenario."
European Union leaders warned Tuesday that the continent's economy would stagnate unless governments make major reforms to promote growth. The problem is, though, that large debts in some countries make it difficult to implement stimulus measures to rally economies.
The euro approached a four-year low, which it set last week. The euro dropped to $1.2218, bringing it within a penny of the low of $1.2146 it touched last week.
Traders have been heavily selling the euro in recent weeks because of uneasiness over whether steep budget cuts in countries like Greece, Spain and Portugal will drag down an economic recovery on the continent. Italy was set to become the latest European nation to announce spending cuts to reduce its deficit.
Markets were also hurt by reports that North Korean leader Kim Jong Il ordered his military to combat alert because of rising tensions on the Korean peninsula. Major indexes in Japan and Hong Kong fell more than 3 percent.
The Standard & Poor's 500 index fell 22.74, or 2.1 percent, to 1,050.91, while the NASDAQ composite index dropped 53.10, or 2.4 percent, to 2,160.45.
The S&P touched its lowest level of the year earlier in the day, dropping to 1,040.78.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.15 percent from 3.20 percent late Monday. It fell as low as 3.07 percent, its lowest level since April 2009.
The yield on the 30-year bond briefly fell below 4 percent for the first time since October, before rising slightly. It is down to 4.04 percent from 4.08 percent late Monday.
Britain's FTSE 100 dropped 2.8 percent, Germany's DAX index tumbled 2.9 percent, and France's CAC-40 plummeted 3.8 percent. Japan's Nikkei stock average fell 3.1 percent.
Tuesday's sell-off follows a sharp, late-session drop Monday. The Dow lost 80 points in the last 15 minutes of trading Monday to close down nearly 127.
Investors were also concerned about a bill in Congress that will overhaul financial regulation. The Senate and House are reconciling their separate versions of the proposed reform.
Investors shrugged off a better-than-expected report on existing home sales from April. Such upbeat economic reports had helped push stocks consistently higher earlier in the year.
Oil fell $2.27, to $67.94 a barrel, on the New York Mercantile Exchange.