Stocks fell Tuesday as a flare-up of tensions between North and South Korea combined with downbeat news on the economy gave investors plenty of reasons to sell ahead of the Thanksgiving holiday. The dollar and gold rose as investors sought safe places to park money.
North Korea and South Korea exchanged artillery fire, killing at least two South Korean marines. That came as investors were already concerned that a bailout of Ireland may not be enough to contain Europe's debt crisis. Borrowing costs for Portugal and Spain rose, leading Spain to trim the size of a debt sale.
The Dow Jones industrial average fell 142.21, or 1.3 percent, to 11,036.37.
The clash between North and South Korea was one of the most dramatic between the two rivals since the end of the Korean war. Fifteen South Korean soldiers and three civilians were injured in the artillery exchanges.
The escalating tensions came shortly after the reclusive North Korean regime claimed to have a new uranium enrichment facility and six weeks after the country's leader Kim Jong Il anointed his youngest son as his heir apparent.
The showdown between the two countries raises tensions in Asia, but was seen as less of an immediate danger in the U.S. Traders said the showdown was seen by many as an excuse to pare back exposure to risk ahead of the Thanksgiving holiday Thursday. Trading is expected to be light Wednesday as people leave early. Markets will be open for an abbreviated session on Friday.
"Investors don't want to go into the holiday with any lingering doubts," said John Derrick, director of research for U.S. Global Investors. "The tensions in Korea just gave them another excuse to sell."
Hewlett-Packard Co. was the only one among the 30 stocks that make up the Dow Jones industrial average to rise. Shares gained 2.2 percent after the technology company beat Wall Street's expectations for revenue and income thanks to strong corporate spending.
A widening probe into insider trading was still weighing on financial shares Tuesday, a day after FBI agents raided the offices of three hedge funds. JPMorgan Chase & Co. was the worst-performing major bank with a 2.3 percent decline, followed closely by Goldman Sachs Group Inc. with a 2 percent fall.
In other gloomy news on the economy, the Federal Reserve lowered its forecast for growth through next year. In a report releasing minutes from its last meeting Nov. 3, the Fed predicted that the economy will grow only 2.4 percent to 2.5 percent this year. That's down sharply from a previous projection of 3 percent to 3.5 percent. Next year, the economy will expand by 3 percent to 3.6 percent, the Fed said, also much lower than its June forecast.
The darker view helps explain why the Fed decided at its meeting earlier this month to launch another round of stimulus. The central bank plans to buy $600 billion in Treasury bonds over the next eight months in an effort to lower interest rates and spur more spending.
Treasury prices rose, sending their yields lower. The yield on the 10-year Treasury slipped to 2.79 percent, down from 2.80 percent late Monday. That rate is a widely used benchmark for business and consumer loans including mortgages.
The dollar rose 1.3 percent against an index of six other currencies and the euro fell 1.8 percent against the dollar. Gold rose 1.5 percent to $1,377.60 an ounce.
The VIX, a measure of volatility in U.S. stock prices, jumped 14 percent to 21. The index had been steadily falling since May 20 when it went as high as 45, its highest level of the year.
Among gainers was retailer J. Crew Group Inc., which is being taken private in a $3 billion deal with two investment firms. Shares rose $6.34, or 17 percent, to $43.99.
Wednesday will bring an unusually large amount of economic data since several reports that normally come out Thursday are being moved up because of the holiday. Reports are due out on weekly claims for unemployment benefits, durable goods and personal income.
Falling shares outpaced rising shares by four to one on the New York Stock Exchange. Volume was 1 billion shares.