The stock market took its single worst one-day plunge in more than a year yesterday, rattled by fear over Europe’s continuing debt crisis and uncertainty over a crackdown on Wall Street by Washington.
The Dow Jones industrial average dropped a stomachchurning 376 points — or 3.6 percent — the biggest singleday drop since February 2009, with all the major indexes down more than 3 percent.
Hope that an economic recovery was under way was nearly shattered by the weeklong decline in major markets around the world.
Indeed, the German-led bailout of Greece has seemingly done little to stem worries that Europe’s economy could sink under an increasing load of government debt.
Germany’s move to temporarily halt some short selling — or betting that stocks will decline — was supposed to help, but ended up adding to the worries.
“It’s starting to look like one of these tragic stories where one person falls through the ice, then everyone else rushes in to help and ends up drowning,” said Edward Yardeni, an independent market analyst.
The markets also were reacting to President Obama’s announcement that the Senate cleared the way for final passage of the Wall Street regulation package. The bill passed last night, but must be reconciled with a House measure approved in December before it goes to the president’s desk.
“This is not a zero-sum game where Wall Street loses and Main Street gains,” Obama said.
It is the most ambitious effort to rewrite the rules for Wall Street since the Great Depression.
But investors weren’t assuaged by the prospect of new regulations on disclosure, corporate structure, liquidation of failing banks and consumer protections.
The Standard & Poor’s 500 index fell 43.46 points, or 3.9 percent, to 1,071.59. The Nasdaq composite declined 94.36, or 4.1 percent, to 2,204.01.
The Dow closed at 10,068.01, and was down a staggering 6.33 percent for the week.
Overall, the markets experienced what is officially known as a “correction” because indices dropped 10 percent from recent highs. It was the first real correction since March 2009.
“The economic-recovery story has started to look like a mirage, and the new reality is a return to credit-crunch conditions” like those during the financial crisis, said Tom Samuels, manager of the Palantir Fund. “If that’s correct, stock prices are well ahead of economic reality.”
A major fear is the dreaded contagion — that debt problems in Greece and Portugal will spill over to other countries and replicate what happened in Southeast Asia in 1997.
In particular, there are concerns that European countries will have to cut spending to pay down their heavy sovereign debt loads, which could further slow down their economies.
Spending cuts would put less money in circulation, further hurting tax revenue.
For instance, part of Greece’s bailout deal stipulates that it must cut spending to pay off its loans.
“There’s a question out there now that potentially we could be talking about a collapse of the eurozone or countries breaking away from the euro,” said Tim Quinlan, a Wells Fargo economist.
With Lukas I. Alpert, Wires