Dow plunges 519 points on another wild day

Back to reality and back down.

Wall Street focused Wednesday on the bleak landscape ahead for the economy and wiped out its big gains from a day earlier -- and then some.

The Dow Jones industrial average closed down 519 points and has now lost more than 2,000 in less than three weeks. Swings of several hundred points in just minutes have become commonplace.

This time the selling was intensified by worries about debt problems in Europe.

On Tuesday the Federal Reserve said it planned to keep interest rates ultralow for two more years. After some initial confusion, the stock market staged a huge comeback from Monday's plunge -- the worst day of trading since 2008 -- and had one of its best days.

But the interest-rate news proved to be a distraction. The Fed made the pledge because it sees almost no chance that the economy will improve substantially by 2013, and when investors focused on that, they dumped stocks again.

"Now it gets back to the fundamentals," said Mark Lamkin, founder of Lamkin Wealth Management, which manages $215 million.

The Dow closed at 10,719.94, down 519 points, or 4.62 percent, for the day. By points, it was the ninth-biggest decline for the market.

Wednesday was another day marked by big moves. The Dow was down more than 300 points within minutes of the opening bell. It recovered some of that loss, then drifted steadily lower in the last two hours.

The market has traded that way for two weeks, lurching up and down. The most extreme example was Tuesday, when the Dow swung more than 600 points in the one hour and 45 minutes after the Fed's statement. It closed down 634 points.

The stomach-churning highs and lows are reminiscent of the fall of 2008, the depths of the financial crisis, when there were swings of 800 or even 1,000 points in a day.

Computerized trading systems -- programmed to analyze charts, capitalize on the tiniest changes in price and execute trades with no human intervention -- are making the market rougher.

High-frequency trading programs make up about half of the trading volume in a normal market day but 70 percent or more on a volatile one. The programs pounce on stock changes to make just slivers of a penny but do it so often that it adds up.

The Standard & Poor's 500 index finished the day down 4.42 percent to 1,120.76, and the Nasdaq composite index down 4.09 percent to 2,381.05.

Financial stocks led the market lower. Bank of America and Citigroup each lost more than 10 percent of their market value. Wall Street is worried because it doesn't know how badly U.S. banks might be hurt by Europe's debt problems.

Investors fear Italy and Spain will be the next countries unable to repay their debts. The European financial system has been battered by fears about banks holding bonds of heavily indebted countries such as Greece and Portugal.

"It's the same game of Old Maid playing out in Europe that was played out here during the subprime mortgage crisis," said Quincy Krosby, an economist and market strategist with Prudential Financial.

The fear is that if European governments default on their bonds, it will hurt the European banks that own them. That could start a chain reaction that hurts the United States, because large U.S. banks have loans to European banks.

Europe is also a big market for U.S. companies. It accounted for about 29 percent of foreign sales for S&P 500 companies last year.

France came under pressure Wednesday amid concerns that it could become the next country to lose its top AAA rating.