Economic fears punish stocks

NEW YORK – The problems that have weighed on investors all summer – European debt and fear of a new recession in the United States – hammered the stock market Friday. The Dow Jones industrial average fell more than 300 points.

The plunge erased the week’s gains for stocks and sent the Dow below 11,000. It had not closed below that level since Aug. 22, after several weeks of extraordinary volatility.

The European Central Bank said a top official, Juergen Stark, was resigning almost three years before the end of his term in 2014, revealing deep disagreement over how to solve economic problems in Europe.

Traders fear that one of the continent’s heavily indebted economies could default, an event that would ripple through the global banking system and make it difficult for other European countries to borrow money.

Such an outcome could tip the world economy back into recession. In the U.S., economic growth is already slowing, and unemployment is stuck above 9 percent.

Investors drove the yield on the 10-year Treasury note to 1.92 percent, its lowest since the Federal Reserve Bank of St. Louis began keeping daily records in 1962. The yield was 1.99 percent a day earlier.

High volatility returned to the market Friday. One measure known as the VIX, which measures investors’ fears, increased 18 percent.

Friday’s plunge extends a tough quarter for the stock market. The S&P 500 is down 13 percent since the third quarter started in July. However, it has recovered almost 4 percent since its lowest close this year Aug. 8.

Analysts say stocks are likely to fall further as the crisis in Europe goes on. A shrinking European economy would hurt the U.S. because roughly a quarter of American companies’ revenue comes from Europe, said Sam Stovall, chief investment strategist for S&P in New York.