Stocks fall sharply

NEW YORK – 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 points, its biggest point drop since February 2009. All the major indexes were down well over 3 percent 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 number of people applying for unemployment benefits last week rose unexpectedly and the Greek government’s response to its debt crisis sparked new protests in Athens, but analysts said neither event appeared to set off Thursday’s selling.

They said more investors seemed to be grasping the possibility that the U.S. recovery could be in jeopardy, and that many were realizing that the stock market’s big rebound since March 2009 may not have been justified.

“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.”

Investors are concerned that the debt problems in countries like Greece and Portugal will spill over to other countries in Europe, cause a cascade of losses for big banks and in turn halt economic recovery in the U.S. and elsewhere.

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

They’re also worried that China might take steps that will limit its economic growth, which would also affect the U.S. recovery.

The Standard & Poor’s 500 was down almost 12 percent from its closing high for the year, which was reached April 23. Most analysts consider a drop of more than 10 percent from a recent high to be a “correction.” This is the market’s first correction since stock indexes hit a 12-year low in March last year. The fact it has occurred in just 19 trading days shows how anxious traders are right now.

The Dow has fallen 1,137 points, or 10.2 percent, since hitting its 2010 high April 26. It has fallen by at least 100 points in nine of the 19 trading days since its peak.

On Thursday, the Dow fell 376.36, or 3.6 percent, to 10,068.01. The S&P 500 fell 43.46, or 3.9 percent, to 1,071.59. The drop was the worst for the Dow since February 2009, and the S&P’s worst since April 2009.

All of the 30 Dow stocks fell, while 497 of the 500 S&P stocks closed lower.

The Nasdaq composite index fell 94.36, or 4.1 percent, to 2,204.01, its largest percentage drop since February.