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By STAN CHOE, AP Business Writer
      
 

NEW YORK (AP) — Stocks plunged worldwide Thursday as more signs
of economic weakness revived investors' fears of another recession.
The Dow Jones industrial average fell 400 points in a return to the
wild swings in the market last week.


     The intense selling started as soon as trading began, and the
Dow was down 528 points shortly after the opening bell. The drop
ended four days of relative calm in the stock market.


      Market strategists said investors were increasingly pessimistic
about the economy. It wasn't just the day's economic reports -
warnings like this one added to the gloom:


      The U.S. and European economies are "dangerously close to
recession," Morgan Stanley economists wrote in a report. "It
won't take much in the form of additional shocks to tip the
balance."


      The Dow Jones industrial average fell 488 points, or 4.3
percent, to 10,922 at 3:05 p.m. in New York The Standard & Poor's
500 index fell 59 points, or 5 percent, to 1,134. All but four of
the 500 stocks in the index fell. The Nasdaq composite fell 139, or
5.6 percent, to 2,372.


      "This is yet another stage of panic selling," said Gene Peroni
Jr., a portfolio manager with Advisors Asset Management with $7.3
billion in client assets. "Investors are reacting first and asking
questions later."


      Last week was one of the wildest in Wall Street history. The Dow
moved more than 400 points on four straight days for the first
time.


      Stocks had been relatively stable this week because investors
were calmed by strong earnings reports and a flurry of corporate
acquisition deals. The Dow had fallen 76 points Tuesday and risen
four points Wednesday - the first time that the average rose or
fell by less than 100 points on two straight days in nearly three
weeks.


      That ended Thursday. And with stocks down big, money flooded
into U.S. Treasurys and gold, both considered safer investments.


      The yield on the 10-year Treasury note briefly fell below 2
percent for the first time, before recovering to 2.07 percent. Low
yields show that investors are willing to accept a lower return on
their money in exchange for safety. Demand for government debt has
stayed high, and yields low, even after Standard & Poor's stripped
the United States of its top credit rating.


      Gold rose to a record of $1,829.70 per ounce before falling back
to $1,829. That's up from $1,400 at the start of the year and more
than double the price several years ago. The price of gold has set
one record after another, with some investors looking for stability
and others simply looking to cash in.


      The Morgan Stanley economists cut their forecast for growth in
developed economies this year to 1.5 percent from 1.9 percent. Over
the past 20 years, growth for developed economies has been closer
to 2.3 percent. The economists cited policy errors among other
factors, including Europe's slow response to its debt problems and
the partisan debate in Washington around the U.S. debt level.


      Concerns about Europe are hanging over U.S. markets. A default
by any country would hurt the European banks that hold European
government bonds, plus American banks that have loans to their
European counterparts.


      "Europe is the big question in the market, and nobody really
knows what happens from here," said Scott Brown, chief economist
at Raymond James.


      Investors were also worried by a report from The Wall Street
Journal that U.S. regulators are scrutinizing the U.S. arms of
European banks to see if they have reliable access to funds.


      The European Central Bank also said Thursday that one
unidentified bank had borrowed $500 million a day earlier for seven
days through its dollar lending program at 1.1 percent. A request
for dollars from the ECB suggests that at least one big bank is
having trouble obtaining funds. Analysts said fears about one
bank's troubles are enough to spark concerns about the entire
industry because traders are already worried about banks' sovereign
debt holdings.


      Among Thursday's disappointing U.S. economic news:


      — 408,000 people applied for unemployment benefits last week, up
from 399,000 the week before and the most in four weeks.


      — Inflation at the consumer level rose 0.5 percent in July, the
highest since March.


      — Manufacturing has sharply weakened in the Philadelphia region,
according to a report from the Federal Reserve. Manufacturing had
been one of the economy's strongest industries since the recession
ended in 2009, but its growth has slowed this year.


      — The National Association of Realtors said the number of people
who bought previously occupied homes dropped in July for the third
time in four months.

      The fresh signs of economic weakness underscore the challenge
for the Federal Reserve as it tries to help the economy with prices
rising and the job market weak, said Jack Ablin, chief investment
officer at Harris Private Bank.


      "Every time the economy got the sniffles, we had the Federal
Reserve standing by with tissues," Ablin said. "This time around,
I think the box is empty, and we're going to have to go through
this alone. I think we can do it. It's just not something we're
accustomed to."


      The Fed has already said it will keep short-term interest rates
super-low into 2013. But the risk of further stoking inflation may
keep it from taking additional steps, such as an additional round
of massive bond-buying.


      U.S. companies are in better financial shape than they were
heading into the 2008 financial crisis, but investors may be losing
faith that governments can help improve the economy, said Ann
Miletti, a portfolio manager with Wells Capital Management who
manages about $4 billion.

      "The market may be recognizing that the quick fixes may not
have worked very well," she said. "They didn't create any
opportunities for employment growth. They didn't do anything for
housing. They didn't do anything for the real problems, and they've
been costly. If there is a double-dip recession, and there is going
to be a quick fix, will that be good enough? Or do we even want
that, because it hasn't done anything?"


      On Thursday, U.S. stocks in industries that depend on a growing
economy fell the most. Stocks of raw materials producers in the S&P
500 fell 6.2 percent, as did energy stocks. Industrials fell 6.1
percent.


      NetApp Inc. fell 15.6 percent, the most among stocks in the S&P
500. The maker of computer data storage products reported revenue
for last quarter that fell short of analysts' expectations.


      JDS Uniphase Corp., a maker of communications equipment, fell 13
percent after it gave a profit forecast for this quarter that was
below analysts' expectations.


      The smallest losses came from industries whose profits are less
dependent on the economy. Utility stocks in the S&P 500 fell just 2
percent because customers still turn on the lights during a
recession.


      The VIX index, a measure of investor fear, rose 30 percent to
41. But it is still below where it was early last week, when it was
at 48.


      Crude oil fell $4.11 per barrel to $83.47 on worries that a
weaker global economy will mean less demand. Falling prices for
crude oil should work their way to the gas pump, though, and bring


household budgets at least some relief.
      Asian markets started Thursday's drop. Japan's Nikkei 225 index
fell 1.3 percent. South Korea's Kospi stock index fell 1.7 percent,
and India's Sensex index fell 2.2 percent. Japan said its exports
fell for the fifth straight month.


      In Europe, Germany's DAX index fell 5.8 percent, and France's
CAC 40 fell 5.5 percent.


      AP Business Writers David K. Randall and Matthew Craft in New
York and AP Business Writer Sarah DiLorenzo in Paris contributed to
this report.
      

Gallery

Business and Economic News

Stocks plunged worldwide Thursday as more signs
of economic weakness revived investors' fears of another recession.
The Dow Jones industrial average fell 400 points in a return to the
wild swings in the market last week.

Here we go again: Stocks plunge on economic fear

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