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Another big loss on Wall Street

Dow loses 419 points as volatility returns to Wall Street. Besides stocks, oil prices and mortgage rates also fall.

By Stan ChoeAP Business Writer / August 18, 2011

A trader sits down, on the floor of the New York Stock Exchange Aug. 18, 2011. Stocks fell sharply with the Dow index falling 419 points. Oil prices tumbled, too, while gold reached a new record.

Brendan McDermid/Reuters

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NEW YORK

Just when Wall Street seemed to have settled down, a barrage of bad economic reports collided with fresh worries about European banks Thursday and triggered a global sell-off in stocks.

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The Dow Jones industrial average fell 419 points — a return to the wild swings that gripped the stock market last week.

Stocks were only part of a dramatic day across the financial markets. The price of oil fell $5, gold set another record, the 10-year Treasury hit its lowest yield, and the average mortgage rate fell to its lowest in at least 40 years.

The selling began in Asia, where Japanese exports fell for a fifth straight month, and continued in Europe, where bank stocks were hammered because of worries about debt problems there, which have proved hard to contain.

On Wall Street, the losses wiped out much of the roughly 700 points that the Dow had gained over five days. Some investors who bought in the middle of last week decided to sell after they were confronted with a raft of bad news about the economy:

— More Americans joined the unemployment line last week than at any time in the past month. The number of people filing claims for unemployment benefits for the first time rose to 408,000, or 9,000 more than the week before.

— Inflation at the consumer level in July was the highest since March. More expensive gas, food, clothes and other necessities are squeezing household budgets at a time when most people aren't getting raises.

— Sales of previously occupied homes fell in July for the third time in four months — more trouble for a housing market that can't seem to turn itself around. This year is on pace to be the worst since the late 1990s for home sales.

— Manufacturing has sharply weakened in the mid-Atlantic states, according to a report from the Federal Reserve. Manufacturing had been one of the economy's strongest industries since the recession ended in 2009, but its growth has slowed this year.

The manufacturing news was especially bleak on an already bad day, said Dan Greenhaus, chief global strategist at brokerage BTIG. He called the Fed report "an atrocious set of numbers."

"That really set the market on its head," he said.

Wall Street and other financial markets have wrestled for several weeks with fears that a new recession might be in the offing. Morgan Stanley economists said in a report Thursday that the U.S. and Europe are "dangerously close to recession."

"It won't take much in the form of additional shocks to tip the balance," they wrote.

Worries about European debt also hang over the market. A default by any country would hurt the European banks that hold those European government bonds, plus American banks that have lent to their European counterparts.

Renewing the fears, The Wall Street Journal reported Thursday that U.S. regulators are looking at the U.S. arms of big European banks to make sure they have enough money for day-to-day operations.

"I don't want to pretend that the market knows what it's thinking about too much," said David Kelly, chief market strategist at JPMorgan Funds. "We live in an environment of sell now and ask questions later. The European market was off very heavily this morning before the markets opened. But honestly there wasn't any news of any substance. We always collect whatever crumbs we can find and point to them."