Stocks tumbled on Tuesday after a sharp drop in consumer confidence and on fresh concerns over euro-zone fiscal problems ahead of massive bank repayments to the European Central Bank this week.
The S&P 500 fell to within striking distance of its 2010 intraday low, which analysts said could trigger further declines. The index is on course to close at its lowest level since November -- another bearish signal for markets.
The equity sell-off was broad and deep in a continuation of a wave of selling that started in Asia overnight and then moved into Europe. Economically sensitive sectors such as materials, industrials and financials bore the brunt of the selling.
Boeing Co slid almost 5 percent to $64.18 and Caterpillar Inc tumbled 4.2 percent to $61.68. Even diversified manufacturer 3M Co , which raised its second-quarter sales outlook last night, got caught up in the selling, falling 1 percent.
U.S. consumer confidence dropped sharply in June, after rising for three months, on worries about the labor market, according to a report from the Conference Board. The news fed fears of an economic slowdown after recent weak data from the housing and job markets.
Fears about the strength of the banking system surfaced again, with investors worried about a potential liquidity shortfall of more than 100 billion euros in the financial system as European banks repay 442 billion euros ($545.5 billion) in emergency loans on Thursday.
Tom Forester, fund manager of the Forester Value Fund, said he has been adding more protection to his portfolio by buying S&P 500 puts, giving him the right to sell stocks at a predetermined price, while rotating out of industrials into healthcare and consumer staples.
People are now starting to figure out that growth is going to be a little slower than people had expected, he said from Lake Forest, Illinois. Stimulus goes flat, I think, next quarter and the inventory rebuild is over.
The Dow Jones industrial average <.DJI> dropped 227.78 points, or 2.25 percent, to 9,910.74. The Standard & Poor's 500 Index <.SPX> fell 27.55 points, or 2.56 percent, to 1,047.02. The Nasdaq Composite Index <.IXIC> lost 67.22 points, or 3.03 percent, to 2,153.43.
The three main U.S. stock indexes were already in a weak technical position after their daily moving average convergence divergence, or MACD, a widely followed momentum indicator, generated a sell signal, as it pointed to more negative short term momentum.
The S&P 500 has fallen more than 6 percent in little over a week, threatening to take out its 2010 intraday at 1,040.78 and brushing up against its closing low for the year at 1,050.47.
Earlier in the day, the Conference Board corrected its leading economic index for China to an April gain of 0.3 percent from a previously reported rise of 1.7 percent, a sharp revision that undermined confidence in China's ability to sustain strong growth.
The correction prompted investors to turn against riskier assets, adding to a global sell-off. The Shanghai composite index fell 4.3 percent to a new 14-month low.
The hint of moderation is what alarmed markets as it comes in the context of fragile U.S. and European economies at the time we look to Asia as the global economic savior, said Peter Boockvar, equity strategist at Miller Tabak + Co in New York.
U.S. crude oil futures dropped 3.3 percent to $75.71 a barrel, and the euro hit a lifetime low against the Swiss franc and an 8-1/2 bottom against the yen.
Moving in tandem with stocks, the euro has become a proxy for risk aversion. The The 25-day rolling correlation between the euro and the S&P 500 rose to just short of 0.67 on Tuesday.
The three-month LIBOR in euros, the price that European banks charge each other for short-term loans, rose to an 8-month high.
The CBOE volatility index <.VIX>, known as Wall Street's fear gauge, rose 16 percent to a session high of 34.69, its highest level since early June.
(Reporting by Angela Moon; Editing by Jan Paschal)