Fears about the economy and unrest in Saudi Arabia darkened the outlook for equities on Thursday, pushing major indexes below key technical levels.
The Dow's worst day in seven months came after reports that authorities in Saudi Arabia had opened fire on demonstrators, increasing anxiety about instability in major oil producing nations.
All three major indexes fell below their 50-day moving averages, a sign of deteriorating market strength. Sellers came out in force, with volume at 9.07 billion shares, above last year's daily average of 8.47 billion shares.
The market just needed a catalyst. It was so extended, said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. I think this is the beginning of something severe.
Energy stocks were the biggest drag after recent gains. The S&P's energy sector <.GSPE> lost 3.6 percent, with Exxon Mobil
Declining stocks beat advancers by more than to five to one on NYSE.
The Dow Jones industrial average <.DJI> fell 228.48 points, or 1.87 percent, to end at 11,984.61. The Standard & Poor's 500 Index <.SPX> lost 24.91 points, or 1.89 percent, to end at 1,295.11. The Nasdaq Composite Index <.IXIC> dropped 50.70 points, or 1.84 percent, to close at 2,701.02.
The Dow posted its biggest decline since August 11, weighed down by industrial and energy stocks.
The CBOE Volatility Index or VIX <.VIX>, Wall Street's favorite gauge of investor fear, jumped 8.2 percent to 21.88.
Analysts have been calling for a correction in the market after its big run up since early September. The S&P 500 is up over 23 percent since then.
However, many investors have been using dips to increase exposure to stocks in the belief that longer-term economic fundamentals point to a slow steady recovery.
I do think it is a buying opportunity, said Peter Andersen, a portfolio manager at Congress Asset Management in Boston, who said he had been buying stocks over the course of the day. I'm adding to names that I've always liked.
The benchmark S&P 500 and the Nasdaq closed below their 50-day moving average for the first time since September. The Dow closed below the level for the first time since November.
An index of semiconductors <.SOX>, among the market's weaker areas this week, lost 2.5 percent.
Brent crude futures ended lower, but settled nearly $2 above their session low after news about protests in Saudi Arabia. Brent slipped 51 cents to settle at $115.43 per barrel.
The S&P energy index is up 8 percent since the start of the year, while the semi index is up 2.9 percent. The S&P 500 is up 3 percent since the end of December.
China swung to an unexpected trade deficit in February of $7.3 billion, its largest in seven years, but economists said the drop was likely temporary.
U.S. government data showed initial claims for state unemployment benefits increased 26,000 to a seasonally adjusted 397,000 and the U.S. trade deficit widened much more than expected in January to $46.3 billion.
Moody's one-notch downgrade of Spain, based on the costs of restructuring its banks, came with a warning that further cuts were possible. The agency downgraded Greece's debt earlier this week.
(Reporting by Edward Krudy; Additional reporting by Caroline Valetkevitch, Charles Mikolajczak and Doris Frankel; Editing by Jan Paschal)