Dow tumbles 376 points, most in a year

Stocks took their deepest plunge in more than a year Thursday as fears grew that Europe's debt crisis could spread around the world and undermine the U.S. economic recovery. The possibility has been brewing for weeks, but analysts said some investors are just waking up to it.

The Dow Jones industrial average fell 376.36 points, or 3.6 percent, to 10,068.01, its biggest point drop since February 2009.

All the major indexes were down well over 3 percent Thursday and are now showing losses for 2010. Interest rates fell sharply in the Treasury market as investors once again sought the safety of U.S. government debt.

The Standard & Poor's 500 fell 43.46 points, or 3.9 percent, to 1,071.59, its worst decline since April 2009. The Nasdaq composite index fell 94.36 points, or 4.1 percent, to 2,204.01. All of the 30 Dow stocks fell, while 497 of the 500 S&P stocks closed lower.

Analysts said the market is vulnerable to rumors about any of the major economies right now and traders were retreating from any investment thought to be too dangerous to hold. That has meant heavy selling in stocks, commodities and troubled currencies like the euro.

"The economic recovery story has started to look like a mirage," said Tom Samuels, manager of the Palantir Fund in Houston. "If that's correct, stock prices are well ahead of economic reality."

The Chicago Board Options Exchange's Volatility Index - known as the market's fear gauge - leaped almost 30 percent to its highest level since March 2009, closing yesterday at 45.79.

Investors concerned about Europe's credit crisis are also worried that China might take steps that will limit its economic growth, which would also affect the U.S. recovery, analysts said.

"It's starting to look like one of these tragic stories where one person falls through the ice, then everyone else rushes in to help and ends up drowning," said independent market analyst Edward Yardeni.