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Stocks in tailspin as China adds to Federal Reserve worries

Stocks plunged Thursday continuing the flight from stocks and bonds as traders reacted to news that the Federal Reserve could end its massive bond-buying program. A slowdown in Chinese manufacturing added to Wall Street's worries.

By Steve RothwellAP Markets Writer / June 20, 2013

Traders work on the floor at the New York Stock Exchange Thursday. Stocks fell across the board Thursday as investors reacted to news the Federal Reserve could end its massive bond-buying program.

Brendan McDermid/Reuters/File

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New York

There was no let-up in the flight from stocks and bonds Thursday as the Dow Jones industrial average plunged 353 points and wiped out almost two months of gains.

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A day after the Federal Reserve roiled U.S financial markets when it said it could step back from its aggressive economic stimulus program later this year, financial markets continued to slide. A slowdown in Chinese manufacturing added to Wall Street's worries.

The breadth of the sell-off was seen across global financial markets, from sharply lower stock markets in Asia to falling government bond prices in Europe and the U.S. Gold also plunged.

The Dow's drop — which knocked the average down 2.3 percent to 14,758.32 — was its biggest since November 2011. It comes just three weeks after the blue-chip index reached an all-time high of 15,409.

The Standard & Poor's 500 lost 40.74 points, or 2.5 percent, to 1,588.19. It also reached a record high last month, peaking at 1,669.

Small-company stocks fell more than the rest of the market, a sign that investors are aggressively reducing risk.

In U.S. government debt, the yield on the benchmark 10-year note rose to its highest level since August 2011.

A Fed policy statement and comments from Chairman Ben Bernanke started the selling in stocks and bonds Wednesday. Bernanke said the Fed expects to scale back its massive bond-buying program later this year and end it entirely by mid-2014 if the economy continues to improve.

The bank has been buying $85 billion a month in Treasury and mortgage bonds, a program that has kept borrowing costs near historic lows for consumers and business. It has also helped boost the stock market.

Alec Young, a global equity strategist at S&P Capital IQ, said investors weren't expecting Bernanke to say the program could end so quickly, and are adjusting their portfolios in anticipation of higher U.S. interest rates.

"What we're seeing is a pretty significant sea-change in investor strategy," Young said.

As financial markets dropped, investors likely put the proceeds of their sales in cash as they waited for the dust to settle, said Quincy Krosby, a market strategist at Prudential Financial.

Investors "are raising cash right now, for fear the deterioration will continue," said Krosby.

The yield on the 10-year Treasury note rose to 2.41 percent, from 2.35 percent Wednesday. It's up sharply since May 3, when it hit a year low of 1.63 percent.

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