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Stocks plunge amid global recovery fears

The Dow plummeted by more than 2 percent on Wednesday, losing about 279 points, after Moody's cut Greece's bond ratings

June 1, 2011

In this May 31, 2011 photo, specialist Philip Finale, left, and trader Thomas Lyden work on the floor of the New York Stock. The euro held on to recent gains Wednesday, June 1, on hopes Greece will get more help with its debts.

Richard Drew / AP

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By Abby Schultz and JeeYeon Park, CNBC.com

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Stocks sank more than 2 percent Wednesday, following several economic reports that confirmed a struggling recovery and after Moody's downgraded Greece's bond ratings deeper into junk status.

The Dow Jones Industrial Average plunged 279.65 points, or 2.22 percent to close at 12,290.14.

Financial stocks led the blue-chip index lower, including Bank of America and JPMorgan. Multinationals Caterpillar and Alcoa also slid on fears of a global slowdown.

The S&P 500 slipped 30.65 points, or 2.28 percent to end at 1,314.55.

The Nasdaq fell 66.11 points, or 2.33 percent to finish at 2,769.19.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged 18.45 percent, to end at 18.30.

The Dow and S&P have seen the biggest drops since August 11, 2010 and are now on pace for a fifth straight week of losses. The Nasdaq saw its worst first day of the month since October 2009. All 10 key S&P 500 sectors dropped, led by financials, materials and industrials.

News that the manufacturing sector was in worse shape than most analysts had thought also sent the yield on the Treasury's 10-year note to 2.96 percent, its lowest since December 2010.

While the downdraft in the stocks today was sharp, the market remains “very much range-bound,” said Dan McMahon, director of equity trading at Raymond James.

“This is a fairly volatile move the past two days within a range bound market,” McMahon said.

Even though the S&P index broke through the 100-day moving average of 1,317, a level it has held since March, McMahon said the selloff won't mean much unless stocks continue to trade lower, validating the move.

Moody's cut Greece's bond ratings by another notch into junk status. In addition to the increased risk of restructuring, the agency cited "highly uncertain" growth prospects and missed targets in budget reforms.

Financials led the markets lower, with the KBW Bank Index sinking to a six-month low and below its 200-day moving average, following more dismal news on the housing market Tuesday when the S&P/Case-Shiller home price index showed home prices fell to a new recession low in the first quarter.

Banks are exposed to the housing market not only through their loan portfolios, but also through holdings of mortgage-backed securities.

In further bad news for the housing market, the Mortgage Bankers Association reported its index of mortgage applications fell almost 4 percent last week, led by refinancings, which fell 5.7 percent.