Another wave of selling hit stocks Wednesday in response to growing fears that Europe has no quick fix for its debt crisis.
The Dow Jones industrial average fell about 67 points after having been down as much as 186. It was the Dow's ninth drop in 12 days.
The extent of investors' worries became clear after the euro bounced off a four-year low but stocks still fell. The euro has been driving stock trading for weeks.
The Standard & Poor's 500 index, widely considered one of the best measures of how the stock market is doing, neared a 10 percent drop from the 2010 trading high it reached last month. That would mark the first time the market has had what's known as a "correction" since it bounced off a 12-year low in March last year. Most analysts say a correction is a drop of at least 10 percent.
The latest worry came from Germany, where regulators banned what's called naked short selling. That occurs when traders bet against investments they don't hold. The rule covers European government bonds, credit default swaps and the shares of several financial companies.
The sudden announcement late Tuesday from Germany's financial regulator was seen in the markets as another example of disarray in Europe's financial system. Analysts said the hasty move only deepened the uncertainty about what steps governments might take next in hopes of containing the selling. Major European stock markets tumbled nearly 3 percent.
Maury Fertig, chief investment officer at Relative Value Partners, in Northbrook, Ill., said memories of the market's crash in late 2008 and early 2009 are still raw and that traders don't want to be caught when stocks start to slide.
"It's shoot first, ask questions later," Fertig said. "The freshness of the pain of 2008 is still really stuck in investors' minds."
Germany enacted the short-selling rule in hopes of curtailing sudden swings in European debt markets, like the ones that crippled Greece's ability to borrow money after the rates on its bonds shot higher earlier this year.
European leaders agreed last week to a nearly $1 trillion bailout program to help countries like Greece that face mounting debt problems. The deal was initially embraced by financial markets, but traders quickly became concerned that the austerity measures tied to the rescue package would upend a rebound.
"People are still just very concerned about what's going on overseas," said Sam Stovall, chief investment strategist in U.S. equity research at Standard & Poor's.
The Dow fell 66.58, or 0.6 percent, to 10,444.37 after dropping 115 on Tuesday.
The S&P 500 index fell 5.75, or 0.5 percent, to 1,115.05. At its low Wednesday, the index was down 9.8 percent from its 2010 trading high. Based on where it closed Wednesday, the S&P 500 index is down 8.4 percent from its peak this year. Analysts at S&P who have evaulated the events driving the market this year say that a drop of as much 15 percent is possible.
The Nasdaq composite index fell 18.89, or 0.8 percent, to 2,298.37.
Bond prices slipped, pushing yields higher. The yield on the benchmark 10-year Treasury note rose to 3.37 percent from 3.35 percent late Tuesday. Bond yields have been falling in recent weeks as investors flock to safe investments.
Crude oil rose 46 cents to $69.87 per barrel on the New York Mercantile Exchange. Gold fell.
U.S. investors haven't been focusing on the U.S. economy but given the downbeat mood on Wall Street downbeat news drew some attention.
The Mortgage Bankers Association reported that the number of homeowners who missed at least one payment on their mortgage rose to a record in the first quarter. That signaled that foreclosures could rise and suggested that troubles in the U.S. housing sector are far from over.
Minutes from the Federal Reserve's late April meeting indicated that policymakers were more upbeat about the prospects of the U.S. economy than they were at the start of the year. The forecast that was updated for last month's meeting was that the economy can grow by 3.2 percent to 3.7 percent this year. That's stronger than in January when the Fed predicted growth of 2.8 percent to 3.5 percent.
The Fed's take on the economy, however, came before the stock market started tumbling this month on concerns about debt in Europe.
Michael Church, president at Addison Capital Group in Philadelphia, said stocks were overdue for a break and that while the concerns about Europe are real, the slide in stocks could turn out to be little more than a correction.
"The risk is that this does derail things but I'm not convinced that that's reality yet," he said. Church contends that stocks will push higher again if it becomes clear that the debt problems in Europe can be contained, at least for now.
About four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.6 billion shares, compared with 1.5 billion Tuesday.
The Russell 2000 index of smaller companies fell 8.35, or 1.2 percent, to 674.40.
Britain's FTSE 100 dropped 2.7 percent, Germany's DAX index fell 2.8 percent, and France's CAC-40 dropped 2.9 percent. Japan's Nikkei stock average fell 0.5 percent.
