Stocks sank in a broad global sell-off on Tuesday as investors worried that Europe's banking problems and North Korea's threats of military action against South Korea could derail the economic recovery.
The S&P 500 briefly fell below February's intraday bottom of 1,044.50, reaching its lowest point since early November 2009. The index is down about 13 percent from its closing high in late April. Some traders said they were looking for a 20 percent drop from that recent peak, which is the definition of a bear market.
All 30 Dow stocks were in negative territory as the index slid below the 10,000 level. Decliners outnumbered advancers on the New York Stock Exchange by a ratio of about 15 to one while on the Nasdaq, about eight stocks fell for every one that rose.
European markets were on edge after the Libor three-month dollar rate rose to the highest level since July as banks became more wary of lending to European institutions after the Spanish government's rescue of a local bank over the weekend. Rising Libor rates raise banks' funding costs.
Libor poses significant downside risk for U.S. banks, said John Brady, senior vice president at MF Global in Chicago.
The euro fell to an 8-1/2-year low against the yen and approached a 4-year low versus the dollar, while safe-haven U.S. Treasuries rallied.
The KBW Banks index <.BKX> shed 1.4 percent while Bank of America Corp lost 2.3 percent to $15.04 and JPMorgan Chase & Co slid 1.3 percent to $38.13. Both companies are Dow components.
Industrial and material stocks were also hit hard on the fallout from Europe's debt crisis. Caterpillar Inc was among the Dow's biggest percentage decliners, off 2.5 percent at $57.78. Alcoa Inc was off 2.2 percent at $10.85.
People are flinching like it's the crisis of 2008. Everyone is hitting the panic button, said Rob Stein, managing partner of the Chicago-based Astor Asset Management. He added that he didn't see much additional downside potential.
The Dow Jones industrial average <.DJI> was down 150.32 points, or 1.49 percent, at 9,916.25. The Standard & Poor's 500 Index <.SPX> was down 15.08 points, or 1.40 percent, at 1,058.57. The Nasdaq Composite Index <.IXIC> was down 31.34 points, or 1.42 percent, at 2,182.21.
Earlier, the three major U.S. stock indexes had each fallen about 3 percent to session lows.
North Korea's threat of military action against the South helped drive South Korean shares to a 15-week closing low as the government in Seoul convened an emergency session, rattling investors around the globe. The threats followed the sinking of a South Korean warship, allegedly by the North, in March.
Commodities also participated in the sell-off, with July crude futures sinking 2.5 percent, or $1.72, to $68.52 a barrel. Chevron Corp shares fell 2.3 percent to $71.77 while fellow Dow component Exxon Mobil Corp lost 1.8 percent to $59.09.
In one bright spot, U.S. consumer confidence rose for the third straight month in May to the highest in more than two years. But that was countered by a report showing single-family home prices dropping in the first quarter on renewed price pressure as federal aid faded away.
In earnings news, Medtronic Inc slid 3 percent to $39.42 despite reporting fourth-quarter earnings that beat expectations.
On the upside, shoe retailer DSW Inc shot up 3.6percent to $28.23 after reporting first-quarter earnings that easily topped consensus.
(Reporting by Ryan Vlastelica; Editing by Jan Paschal)