US stocks tank on fear investors rattled………

NEW YORK (CNNMoney.com) — Stocks got pummeled Thursday, with the Dow, Nasdaq and S&P 500 losing enough to fall into “correction territory” – marked by a drop of more than 10% off the rally highs.

Worries that the European debt crisis and slump in the euro might spark a second leg down for the global economy fueled the selling, extending the recent declines.

The Dow Jones industrial average (INDU) fell 376 points, or 3.6%, closing just above its lows.

The Nasdaq (COMP) fell 94 points, or 4.1% and the S&P 500 (SPX) declined 43 points, or 3.9%.

The market had cut losses in the afternoon as the euro gained ground against the dollar, but stocks reversed course and ended just above their lows after the Wall Street reform bill cleared a key hurdle in the Senate that all but assures its passage.

Here’s a look at what was moving stocks near the close:

The CBOE Volatility index, the VIX (VIX), Wall Street’s fear gauge, spiked 25% to a 14-month high of 44.25. The VIX had touched 45.21 earlier.

“With the jobless data and weakness out of the European markets, stocks are down again,” said Steven Goldman, market strategist at Weeden & Co.

“There’s a heightened sense of nervousness and markets look to be testing the lows of two weeks ago, when we had the mini-crash,” he said.

On May 6, the Dow lost nearly 1,000 points during the session before recovering to close down 348 points.

During that session, the Dow, S&P 500 and Nasdaq fell to levels that set them at least 10% off the rally highs. The Nasdaq has already closed at those levels, meaning it is in a correction, according to the technical definition. Should the S&P 500 close at its current level below 1095, and the Dow below 10,085 (it hasn’t sunk that low today), they would also be in a correction.

Goldman said that hitting those levels might ease the selling, as investors are more able to tolerate the uncertainty of the European debt crisis and euro plunge when the market is at a lower level than when its at 2010 highs.

Beyond the reaction to the immediate headlines, the stock market may have already been vulnerable to selling, said Brett Hammond, chief investment strategist at TIAA-CREF.

“The European debt issues and the euro are very important,” he said. “But the market was already poised for a pullback after the enormous run up in the stock market since March of 2009.”

He said that the historic rally was partly fueled by anticipation that an economic and corporate profit recovery would take hold and that the consumer would take over from the government as an engine of growth. While some of that has happened, market participants may have been betting on a bigger comeback.

Market breadth was negative. On the New York Stock Exchange, losers beat winners 25 to one on volume of 1.14 billion shares. On the Nasdaq, decliners beat advancers 14 to 1 on volume of 2.03 billion shares.
Stocks: Best moves to make now

Euro: The euro gained 0.5% versus the dollar after falling in the morning. The euro has seesawed over the last few days after plunging to a four-year low of $1.2234 on Monday. The dollar fell 1.8% versus the yen.

Economy: Reports on jobless claims and leading economic indicators (LEI) disappointed, while the Philadelphia Fed index, a regional reading on manufacturing, topped forecasts.

The number of Americans filing new claims for unemployment rose last week to 471,000 from 446,000 the prior week. Economists surveyed by Briefing.com expected claims to fall to 439,000.

Continuing claims, the number of Americans who have been receiving benefits for a week or more, fell to 4,625,000 from 4,665,000 in the previous week. Economists thought claims would fall to 4,600,000.

After the start of trading, the Conference Board released its index of leading economic indicators. LEI fell 0.1% in April after rising 1.3% in March. The index was expected to have risen 0.2%.

The Philadelphia Fed index rose to 21.4 in May from 20.2 in April, topping predictions for a rise to 20.7.

After the mini-crash: New rules continue to be proposed in the wake of the May 6 stock market selloff, in which erroneous trading in hundreds of issues created a panic that dragged down the broad market. Since then, most of the trades have been cancelled, but regulators remain unclear as to what exactly caused the selloff.

Out-of-control computer trading may have caused the slump, Securities and Exchange Commission chairwoman Mary Schapiro told a Senate panel Thursday.

On Tuesday, the SEC proposed new rules that would impose circuit breakers, or a temporary pause, on individual stocks that experience extreme swings. There are already circuit breakers in place for the broad markets, but this would impact individual stocks.

Wall Street reform: After months of debate, an extensive bill to overhaul U.S. financial regulation failed a key test vote in the Senate Wednesday, dealing a setback to Democratic efforts to move the bill forward.

The bill, which seeks to stop bailouts, strengthen consumer protection and make transparent the workings of complex financial transactions, will be put before the Senate again Thursday.

On Wednesday, 57 voted in favor and 42 were opposed. Under Senate rules, 60 votes are needed to move ahead to a final vote.
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World markets: Markets in Europe slumped, as the euro continued its slide versus the dollar. The British FTSE 100 fell 1.7%, the German DAX lost 2% and the French CAC 40 fell 2.3%.

Asian markets tumbled. The Japanese Nikkei fell 1.5%, while the Hong Kong Hang Seng fell 0.2%.

Commodities: U.S. light crude oil for June delivery fell $2.17 to $67.70 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery fell $9.70 to $1,183.40 an ounce.

Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.24% from 3.36% late Wednesday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over three to one on volume of 1.54 billion shares. On the Nasdaq, decliners beat advancers nearly three to one on volume of 2.44 billion shares. To top of page

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