Stocks and interest rates tumbled Wednesday as investors around the world took a bleaker view of the U.S. economy.
The Dow Jones industrial average fell 265 points, or 2.5 percent, its biggest drop in six weeks, and all the major indexes fell more than 2 percent.
The yield on the Treasury's 10-year note fell to its lowest level since March 2009 as investors worried about the economy and avoiding stocks sought the safety of government securities.
Companies across a wide range of industries dropped Wednesday. Only 442 stocks rose on the New York Stock Exchange, while 2,627 fell, a sign that investors expect all businesses to suffer if the economy continues to weaken.
Investors' gloom deepened a day after the Federal Reserve said it would begin buying government bonds as a way to stimulate the economy. News of slower industrial growth in China and a disappointing economic indicator in Japan helped send stocks plunging first in Asia, then in Europe and the U.S.
Investors got more bad news after trading ended in the U.S. Cisco Systems Inc.'s revenue in the company's latest quarter fell short of analysts' expectations. Companies' revenue shortfalls have sent stocks falling over the past month, and Cisco's stock was down sharply in after-hours trading. Its report could touch off more selling on Thursday.
Stock traders tend to buy and sell based on their expectations for what business will be like in six to nine months. The problem for investors is that economic data has been so muddled lately that they have no sense of whether the recovery will hold.
"Uncertainty, uncertainty, uncertainty," was the way that Javier Perez-Santalla, managing director for futures and foreign exchange at the institutional brokerage firm Dinosaur Group, described the mood in the market.
"Everyone is scratching their heads, saying 'Which way?'" Perez-Santalla said. "We're kind of stuck in this no man's land, where we're damned if we do, damned if we don't."
The Fed said Tuesday it will start buying government bonds with money it gets from the maturing mortgage-backed bonds that it bought during the recession. The goal is to try to cut interest rates on mortgages and corporate loans and in turn increase lending and help the economy grow faster.
But the Fed's moves were expected to be quite small in comparison to what the economy needs. And many investors were selling because the debt purchases would have only a limited impact on the economy.
According to preliminary calculations, the Dow dropped 265.42, or 2.5 percent, to 10,378.83, its largest slide since it fell 268.22 on June 29.
The Standard & Poor's 500 index fell 31.59, or 2.8 percent, to 1,089.47. The S&P 500 slipped below 1,100, a key psychological level. Falling and holding below that level could lead to more selling as computer-driven trading sets in.
The Nasdaq composite index fell 68.54, or 3 percent, to 2,208.63. The Nasdaq tends to have the biggest losses when stocks are falling sharply because many of its component companies are smaller businesses that struggle the most in a weak economy.
Trading volume was fairly light on the NYSE at 1.2 billion shares. Trading has been particularly slow, even by summer standards in recent days as uncertainty about the economy led many investors to exit the market completely. Low volume also can exaggerate swings in the market.
The Chicago Board Options Exchange's Volatility Index rose 3.02, or 13.5 percent, to 25.39. The VIX is known as the market's fear gauge because a rise signals traders are expecting more drops in stocks.
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