Stock market convulses

NEW YORK — Stocks went into a freefall Thursday afternoon, with growing anxiety over Greece's debt problems sending investors fleeing from all but the safest assets.

The Dow Jones industrial average briefly plunged nearly 1,000 points around 3 p.m. —crashing below the psychologically significant 10,000 threshold for the first time since February — before quickly regaining about half of those losses.

"That's pretty violent, pretty ugly, scary," said Andrew Brooks, head of stock trading at T. Rowe Price.

In a panic reminiscent of the darkest days of the financial crisis, investors around the globe pulled their money from stocks, junk bonds and other risky securities and poured it into the safest assets, such as U.S. Treasury securities. Rumors were rampant on trading desks, including speculation about funding issues at European banks.

Some traders were blaming the sharp market dive that began about 1:30 p.m. CDT and the ensuing rebound on human errors and automated sales that accentuated price swings. Citigroup and Proctor & Gamble said they are examining trading activity on their stocks and have contacted the Securities and Exchange Commission to look into the matter.

"Somebody made a mistake. It's not so much the error but how the market handled the error that is the story. This is a serious market structure issue," said Sal Arnuk, co-founder of Themis Trading. "The intra-day markets are populated by high-frequency traders who in an automated way speculate thousands of times per second.... When one of them hits a bid, they all do the same thing."

With about 30 minutes left before the closing bell, each of the Dow's 30 stocks was in negative territory, led down by a nearly 10 percent dip in Bank of America's stock price. The Dow ended the day at 10,520.32, down 347.80, or 3.2 percent. The Standard & Poor's 500 index, a broader measure of U.S. markets, fell 37.75, or 3.2 percent, to 1128.15, while the tech-heavy Nasdaq Composite index dropped 82.65, or 3.4 percent, to 2319.64.

Foreign exchanges also suffered. In Paris, the CAC-40 plunged more than 2 percent. In London, the FTSE 100 was down 1.5 percent. In Frankfurt, the DAX fell nearly 1 percent.

Continuing uncertainty over Europe's debt sent the euro to another 14-month low against the dollar. That in turn drove down prices on commodities such as oil and sent stocks in those sectors tumbling.

Last week, the European Union and International Monetary Fund reached an agreement to offer Greece a bailout package totaling more than $140 billion. But some investors are skeptical that the emergency assistance will be enough to address Greece's problems. Some are also doubtful that the Greek government can successfully impose on its people the austerity measures required under the financial rescue package, including tax increases and pay cuts.

Greek lawmakers Thursday approved an austerity bill, despite sometimes violent protests raging outside the parliament building.

"I think the fear of contagion is there," said James Cox, managing partner at Harris Financial Group in Richmond, Va. "If you presumed that Greece was an isolated case this would not be occurring."

In the United States, the Labor Department reported Thursday morning that new claims for jobless benefits fell less than expected last week.

Many retail stores reported unexpectedly weak April sales at stores open more than a year, disappointing investors who had hoped recent upticks in consumer spending would propel the nascent U.S. economic recovery forward. Retail stocks were broadly lower on the reports.