Stocks plunged 9 percent in the last two hours of trading on Thursday before clawing back some of the losses as a suspected trading glitch and fears of a new credit crunch in Europe threw markets into disarray.
The Dow suffered its biggest ever intraday point drop -- 998.5 points. The market's fall may have been exacerbated by an erroneous trades that showed some shares briefly fell to nearly zero.
The situation remained unclear long after the closing bell as the Nasdaq Stock Market and others said they would cancel multiple erroneous trades. Other exchanges scrambled to examine orders.
We did not know what a stock was worth today, and that is a serious problem, Joe Saluzzi of Themis Trading in New Jersey told Reuters Insider.
Indexes recovered some of their losses heading into the close to end down about 3 percent, the biggest fall since April 2009. Equities erased much of their gains for the year.
The sell-off comes at a tense time for investors and Wall Street, with fraud charges against Goldman Sachs, fears of a wave of debt defaults in Europe and increasing clamor for financial regulation.
Volume soared to twice its daily average for this year and was at its highest since October 2008 when financial markets seized up after the bankruptcy of Lehman Brothers.
Some traders around the world were shaken from their beds and told to start trading amid the plunge as investors sought to stem losses in the rapid sell-off.
The Dow Jones industrial average <.DJI> dropped 347.80 points, or 3.20 percent, to 10,520.32. The Standard & Poor's 500 Index <.SPX> fell 37.75 points, or 3.24 percent, to 1,128.15. The Nasdaq Composite Index <.IXIC> lost 82.65 points, or 3.44 percent, to 2,319.64.
At 2:47 p.m. the selling peaked and indexes plummeted across the board with several falling to nearly zero. They included Boston Beer , Radian Group , Exelon Corp. and Centerpoint .
The CBOE Volatility Index <.VIX>, known as Wall Street's fear gauge, closed up more than 30 percent at its highest level since May 2009.
The sell-off was broad and deep with all 10 of the S&P 500 sectors falling from 2 percent to 4 percent. The financial sector index <.GSPF> was the worst hit, tumbling 4.1 percent.
Selling hit major stocks including Bank of America ,the biggest percentage loser on the Dow with a 7.1 percent drop to $16.28. All 30 components of the Dow closed lower.
Nasdaq and NYSE's ARCA trading unit said they will cancel trades executed between 2:40 p.m. and 3 p.m. where a stock price rose or fell more than 60 percent from the last trade in that security at 2:40 p.m.
Investors had been on edge throughout the trading day after the European Central Bank did not discuss the outright purchase of European sovereign debt as some had hoped they would to calm markets. The ECB gave verbal support to Greece's savings plan instead, disappointing some investors.
With markets seriously shaken and still fearful of Europe's mounting debt crisis, thoughts turned to Friday's release of U.S. non-farm payrolls for April by the Labor Department.
The report is one the most important on the economic calendar as investors try to judge the strength of the U.S. recovery.
Rick Campagna, portfolio manager at 300 North Capital LLC in Pasadena, said stocks may bounce off their lows but said the lift would likely be short-lived.
You'll probably see some sort of bounce. I don't think it's going to be long lasting or all that strong, but that's probably what you'll see, he said. I don't think the correction is over.
S&P 500 index futures were volatile and pointed to a nearly 1 percent drop at the open on Friday, falling 8.3 points three hours after the close.
About 19.13 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. Last year's estimated daily average was 9.65 billion.
Decliners outnumbered advancers on the New York Stock Exchange by a ratio of more than 17 to 1, while on the Nasdaq, more than seven stocks fell for every one that rose.
(Reporting by Edward Krudy; additional reporting by Ryan Vlastelica; Editing by Kenneth Barry)