Stocks tumbled more than 4 percent on Thursday after data pointed to a stalled economy and as bank shares sank on a report regulators were scrutinizing the U.S. units of big European lenders.
The decline was broad as well as steep, with just a small handful of the S&P 500's components in positive territory.
The KBW bank index slid 5.5 percent, with Citigroup Inc off 9.6 percent at $27, and Morgan Stanley down 7.5 percent at $15.75.
The market is in meltdown mode, said Sal Catrini, managing director for equities at Cantor Fitzgerald & Co in New York. The data continues to stink. We continue to be in a soft patch.
The Dow Jones industrial average was down 479.53 points, or 4.20 percent, at 10,930.68. The Standard & Poor's 500 fell 52.77 points, or 4.42 percent, at 1,141.12. The Nasdaq Composite lost 120.57 points, or 4.80 percent, at 2,390.91.
Still, at its session low, the S&P 500 was 3 percent above the year lows set early last week.
Factory activity in the U.S. Mid-Atlantic region plummeted in August, falling to the lowest level since March 2009, while existing home sales unexpectedly dropped in July, tempering hopes for a revival of economic recovery. For details, see
Concerned the European debt crisis might spread to U.S. banks, the Federal Reserve Bank of New York has asked for more information about whether the U.S. units of big European lenders have reliable access to funds needed to operate, the Wall Street Journal reported.
Also denting the market, new jobless claims rose more than expected last week, while consumer prices rose faster than expected in July, separate government reports showed.
Investors continued to worry that European policymakers were not doing enough to tackle the euro zone's debt crisis. European blue chips were down 5 percent, with banks down 5.5 percent.