The worries over the economy sent investors rushing to the safety of government securities. The yield on the Treasury's 10-year note fell below 4 percent for the first time since 2005. The shift into bonds came as the Dow briefly sank below the lows seen in the market's August pullback.
The stock market has been thrashing about recently as investors attempt to gauge how companies will fare amid a further slowdown in the US housing market, a deterioration of credit, and record oil prices. Including yesterday's drop, stocks have fallen in eight of the 11 last sessions - forgoing the boost seen in recent years during Thanksgiving week, which is capped by the retail bonanza Black Friday.
Economic readings did little to instill confidence among investors. The Mortgage Bankers Association said mortgage application volume fell 3.6 percent last week. Meanwhile, the slump in housing suggested banks will continue to face souring mortgage debt.
Government-sponsored lender Freddie Mac, which reported a $2 billion quarterly loss Tuesday and saw shares plummet nearly 29 percent, declined again yesterday after an analyst downgrade. Countrywide Financial Corp., the nation's largest mortgage lender, also lost further ground.
In other economic news, the Conference Board suggested an economic slowdown could accelerate in the coming months amid rising costs and further weakness in the housing market. Also, the Reuters/University of Michigan consumer sentiment survey showed its lowest reading in two years - an unwelcome development for retailers entering what is for many the most important period of the year.
The Commerce Department said jobless claims fell by 11,000 last week, a positive sign for US employment, but the report didn't appear to alleviate anxiety about the potential for weaker consumer spending.
"People are buying and selling off the headlines. The market is so emotional," said Neil Hennessy, president and portfolio manager of Hennessy Funds. "You look at oil approaching $100. People are taking their money and going to the sidelines."
The Dow fell 211.10, or 1.62 percent, to 12,799.04. Several financial companies that are part of the 30-stock index hit 52-week lows yesterday and the blue chip index is now down 9.85 percent from its mid-October trading high. A 10 percent decline would meet the technical definition of a correction.
Broader stock indicators also fell. The S&P 500 index dropped 22.93, or 1.59 percent, to 1,416.77.
Meanwhile, the Nasdaq composite index tumbled 34.66, or 1.33 percent, to 2,562.15.
Investors turned to government bonds amid the uncertainty. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.01 percent from 4.09 percent late Tuesday.
And with oil prices briefly reaching a high of $99.29 a barrel in overnight electronic trading, the question is no longer if oil will reach $100, but when - and how long it will stay there.
