NEW YORK Investors around the world dumped stocks and commodities on Thursday and rushed to the security of cash and government bonds, hammering equity indexes to their lowest levels of the year on fears of a spreading debt crisis and slowing growth.
Worries the euro-zone debt crisis was spiralling out of control sent blue chip European stocks to levels not seen since markets recovered from the financial crisis in mid-2009. Italian equities pushed further into bear market territory -- down nearly 30 percent since February.
Major U.S. indexes fell more than 4 percent, with the technology-heavy Nasdaq down 5 percent, erasing gains for the year as the broad-based S&P 500 entered a correction of more than 10 percent from a peak in May.
Intense selling this week reflects frustration with politicians to address pressing concerns over high public debt levels in Europe and the United States as large industrial economies show signs of running aground.
The euro zone's blue chip Euro STOXX 50 index, which measures the performance of 50 big European stocks, fell 3.4 percent to a two-year low, wiping out much of its gains since the end of the financial crisis.
"The big catalyst was fear," said Matt Rubin, director of investment strategy at Neuberger Berman in New York, which manages $199 billion in assets.
"People are selling in anticipation of a lousy jobs number and a double-dip recession," he said, referring to Friday's closely watched U.S. payrolls report, which is expected to show another month of subpar growth in the labour market.
With investors caught in a perfect storm, officials around the world moved to calm markets. The boldest step came from Tokyo, where the government spent an estimated 1 trillion yen ($13 billion) to stem the strength of its currency.
The yen-selling pushed the dollar up roughly 4 percent to a session high of 80.25 yen on trading platform EBS, well off a low of 76.29 set on Monday. The dollar traded on Thursday afternoon at 79.08 yen, up 2.6 percent on the day, while the euro gained 1 percent to 111.70 yen.
The Japanese intervention came a day after Switzerland unexpectedly cut rates to weaken the franc, which has spiked in recent days as investors sought safe havens. The currency edged slightly higher in New York trade on Thursday.
Even gold, which has raced to a series of highs near $1,700 an ounce amid the gathering uncertainty, fell as deepening losses on Wall Street prompted investors to sell the metal to raise cash.
The exodus from stocks pushed the broad Standard & Poor's 500 Index down nearly 5 percent, while the clamour for safe-haven investments drove the yield on the 10-year U.S. Treasury note below 2.5 percent, the lowest since early November 2010.
The CBOE volatility index, or VIX, known as Wall Street's fear gauge, jumped 35.4 percent to 31.7, its highest in more than a year. The move was the biggest jump since February 2007, which came during the U.S. subprime mortgage meltdown.
The Dow Jones industrial average dropped 512.76 points, or 4.31 percent, to end at 11,383.68. The Standard & Poor's 500 Index fell 60.27 points, or 4.78 percent, to 1,200.07. The Nasdaq Composite Index lost 136.68 points, or 5.08 percent, to 2,556.39.
The MSCI world equity index was down 4.3 percent for the day, its largest daily fall in over two years, and hit a fresh 2011 low.
European stocks lost 3.3 percent.
Safe-haven assets like the Swiss franc, the yen and gold have spiked this week on investor fears that governments around the world are planning spending cuts at a time of slowing global economic growth.
The latest spate of economic data points to slowing demand in the United States, while the euro zone grapples with the spread of its debt crisis to Spain and Italy, where borrowing costs have increased sharply.
The European Central Bank kept interest rates unchanged on Thursday, but traders said the bank has been buying bonds of peripheral euro-zone countries in an effort to keep rates down.
German Bunds gained, while Italian and Spanish government bond yields rose in volatile trade after a euro- zone monetary source said the European Central Bank was planning to buy only Portuguese and Irish bonds.
Markets were unconvinced the ECB bond buying will be effective in stopping contagion. some were disappointed that Italian and Spanish bonds, whose yields climbed above 6 percent recently, were not the target of the purchases.
"It wasn't a unanimous decision to (buy bonds). (ECB President Jean-Claude) Trichet looked really uncomfortable saying it," one trader said.
"The market, obviously, dismissed it pretty rapidly," another trader said.
Brent fell more than 5 percent and U.S. crude slid nearly 6 percent, or $5.47, to $86.46 a barrel. Copper prices dropped 2 percent.
(Additional reporting by Julie Haviv, Marius Zaharia and Emelia Sithole-Matarise; Editing by Jan Paschal, Dan Grebler and Andrew Hay)