NEW YORK - Stocks plunged again Thursday as more investors woke up to the possibility that economic problems such as Europe's debt crisis might spread around the world and stop the growing recovery in the U.S.
The Dow Jones industrial average fell about 230 points in early afternoon and all the major indexes were down more than 2 percent. Meanwhile, interest rates fell sharply in the Treasury market as investors once again sought the safety of U.S. government debt.
With Thursday's drop, the Standard & Poor's 500 is down more than 10 percent from its 2010 trading high last month. Such a drop is considered by most analysts to be a "correction" in the market. If the S&P 500 index closed at its present level it would be the first correction since stock indexes hit 12-year lows in March last year.
The market's slide over the past four weeks on worries about the global economy has been a painful reminder of the turbulent days during the 2008 financial crisis. On April 26, the Dow closed at 11,205.03, its highest point since the market hit bottom on March 9, 2009. Since then, it has fallen nearly 1,000 points. It has fallen in triple digits in nine of the 18 trading days since its peak.
Analysts said there was no big event to set off Thursday's selling. More investors seemed to be grasping the possibility that the U.S. recovery could be in jeopardy. And many were realizing that the stock market's big rebound since March 2009 may not have been justified.
"The economic recovery story has started to look like a mirage and the new reality is a return to credit crunch conditions" like those seen during the financial crisis, said Tom Samuels, manager of the Palantir Fund in Houston. "If that's correct, stock prices are well head of economic reality."
Investors are concerned that the debt problems in European nations like Greece and Portugal will spill over to other countries, cause a cascade of massive losses for big banks and in turn halt the economic recovery in countries beyond Europe, including the U.S. They're also worried that China might take steps that will limit its economic growth, which would also affect the U.S. recovery. Analysts said the market is vulnerable to rumors about any of the major economies right now.
But analysts said traders were also looking beyond the news of the day and simply retreating from any investment thought to be too dangerous to own right now. That has meant heavy selling in stocks, commodities and troubled currencies like the euro.
"Investors are in the midst of a major de-risking period due to debt concerns in Europe and signs of a slowdown in China, and now that's accelerating," said Peter Boockvar, equity strategist at Miller Tabak. "The fundamental concern right now are these threats to global growth."
The euro, which has become a key indicator of confidence in Europe's economy, was again a focus for investors. The currency shared by 16 European nations managed to rise to $1.2488 in early afternoon trading, a day after hitting $1.2146, a four-year low. But the euro's rise didn't help stocks.
In midafternoon trading, the Dow fell 229.75, or 2.2 percent, to 10,216.44. The Dow had been down nearly 357 points. The index has fallen for nine of the past 12 days. The Dow dropped 115 points on Tuesday and 67 points on Wednesday.
The S&P 500 fell 27.36, or 2.5 percent, to 1,087.69. The Nasdaq composite index fell 67.48, or 2.9 percent, to 2,230.89.
At the New York Stock Exchange, only 125 stocks rose compared to 2,998 that fell. Volume came to a heavy 1.1 billion shares.
As investors pulled out of stocks and other risky investments like commodities, they moved into safer investments such as U.S. Treasurys. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.23 percent from 3.37 percent late Wednesday.
Commodities prices also fell as investors speculated that a weak world economy would curtail demand for raw materials. Crude oil fell $4 to $65.88 per barrel on the New York Mercantile Exchange.
Traders were trying to anticipate the scenarios that could occur as Europe struggles to contain its debt problems.
"There's a question out there now that potentially we could be talking about a collapse of the eurozone or countries breaking away from the euro," said Tim Quinlan, an economist at Wells Fargo & Co. As recently as four months ago, that wasn't even considered a possibility, Quinlan said.
Such a stark change in views has unnerved investors. But analysts said they weren't seeing signs that fear is sweeping the market.
"These are not panic losses," said Todd Colvin, a vice president at MF Global Inc. in Chicago. "These guys are taking some profits off the table and taking some capital where they know it will be safe. And where's that? That's cash or even Treasurys."
Still, the Chicago Board Options Exchange's Volatility Index - known as the market's fear gauge - leaped 24 percent to its highest level since March 2009. The increase in the VIX signals that traders are bracing for more drops in the market.However, the Labor Department's latest employment report added to worries about the global economy.
The department said new claims for unemployment benefits rose by 25,000 to 471,000, their largest amount in three months. That came as an unpleasant surprise to investors who were expecting a slight drop to 440,000. High unemployment remains one of the biggest obstacles to a sustained recovery in the U.S. The latest report snapped a streak of four straight weekly drops and again calls into question the strength of the job market.
Weekly claims have been stuck around 450,000 since January, unable to break closer to the 425,000 range that is considered a sign that employers are regularly hiring new workers.
A private research group reported an unexpected drop in its index of leading economic indicators. The Conference Board's index of future economic activity slipped in April for first drop since the stock market's bottom last year. Economists polled by Thomson Reuters had expected a gain. The slip signals that growth could slow this summer.
The demand for safety rose after Greek workers again took to the streets protesting recently approved budget cuts that were necessary for the country to receive a bailout. Greece was able to repay debt that came due Wednesday only because it had access to a rescue package from the European Union and International Monetary Fund.
In overseas stock trading, Britain's FTSE 100 fell 1.6, Germany's DAX index dropped 2 percent, and France's CAC-40 lost 2.3 percent.