Dow drops sharply on bad economic news

More signs of economic weakness triggered a global sell-off in stocks Thursday. The Dow Jones industrial average ended the day down more than 400 points, seesawing up from a morning low of more than 500.

In the United States, there were reports that more people joined the unemployment line last week than a week earlier, gasoline prices contributed to higher inflation and manufacturing slowed in the mid-Atlantic.

In Europe, bank stocks slid on worries about the region's debt problems. In Asia, Japan's exports fell for the fifth straight month.

The U.S. and European economies are "dangerously close to recession," Morgan Stanley economists wrote in a report. "It won't take much in the form of additional shocks to tip the balance."

The Dow Jones industrial average fell 419.6 points, or 3.7 percent, to 10,990.8. The Dow was down as many as 528 points about a half-hour into trading.

The Standard & Poor's 500 index fell 53.2 points, or 4.5 percent, to 1,140.7. All but three of the 500 stocks in the index fell. The Nasdaq composite fell 131.1, or 5.2 percent, to 2,380.4.

"This is yet another stage of panic selling," said Gene Peroni Jr., a portfolio manager with Advisors Asset Management with $7.3 billion in client assets. "Investors are reacting first and asking questions later."

Last week was one of the wildest in Wall Street history. The Dow moved more than 400 points on four straight days for the first time. At the extreme it was down 600 points on Aug. 15.

But stocks had been relatively stable this week because investors were calmed by strong earnings reports and a flurry of corporate acquisition deals. The Dow had fallen 76 points Tuesday and risen four points Wednesday -- the first time that the average rose or fell by less than 100 points on two straight days in nearly three weeks.

That ended Thursday. And with stocks down big, money flooded into U.S. Treasurys and gold, both considered safer investments.

The yield on the 10-year Treasury note briefly fell below 2 percent for the first time, before recovering, It closed at 2.08 percent. Low yields show that investors are willing to accept a lower return on their money in exchange for safety. Demand for government debt has stayed high, and yields low, even after Standard & Poor's stripped the United States of its top credit rating.

Gold rose to a record of $1,829.70 per ounce before falling back and closing at $1,827.50 and ounce. That's up from $1,400 at the start of the year and more than double the price several years ago. The price of gold has set one record after another, with some investors looking for stability and others simply looking to cash in.

The Morgan Stanley economists cut their forecast for growth in developed economies this year to 1.5 percent from 1.9 percent. Over the past 20 years, growth for developed economies has been closer to 2.3 percent. The economists cited policy errors among other factors, including Europe's slow response to its debt problems and the partisan debate in Washington around the U.S. debt level.