stocks drop
The Dow Jones Industrial Average plunges after a newswires' server is hacked and a phony tweet about the White House being under attack is sent out. Bloomberg News

The Dow Jones Industrial Average plunged about 145 points on Tuesday afternoon, surrendering the day's gains in a matter of seconds, after a newswires' server was hacked and a phony tweet issued about the White House being attacked.

The blue-chip index was at 14,699 when the AP's Twitter account was hacked and a tweet issued that the White House was being attacked. The broader S&P 500 also dropped into negative territory.

At 1:05 p.m. EDT, the AP's Twitter account sent this out: "Breaking: Two Explosions in the White House and Barack Obama is injured."

Within seconds, the Dow, an index that tracks 30 of the largest and some of the most influential U.S. corporations, plunged to 14,555 from 14,699, a drop of about one percent, before it recovered. The volume of trading on the New York Stock Exchange soared -- hitting an intra-day high of 3.06 million.

Given the S&P 500's value of about $14.6 trillion, its 0.93 percent collapse represented a nominal loss of $136.5 billion, according to Reuters.

Immediately following the fake tweet, AP's account was suspended along with other affiliated AP Twitter accounts, such as AP Stylebook. In a statement, the AP announced that its Twitter account was hacked and said a report about an explosion at the White House was completely false. AP indicated that there were several attempts to gain access to the passwords of its journalists.

“The president is fine, I was just with him,” White House spokesman, Jay Carney, told reporters minutes after the hacking was discovered.

As quickly, however, the Dow recovered and the market resumed trading at the level it had been at before the fake AP tweet was sent out.

"I think there was a lot of damage done on that," Sean Murphy, a treasuries trader at Societe Generale in New York, told Reuters. "Automatically electronic trading kicks in and they don't know the difference between a fictitious story and the truth and immediately started to buy and took us right back to the day's highs."

One possible explanation for the event, if not for its severity, is that a vast quantity of equity trades are now controlled by computers that take their cues from proprietary algorithmic trading programs. One problem with such trading, however, is that it can create a snowball effect, albeit one that normally self-corrects. That was what happend in the May 2010 "flash crash" that lasted less than 20 minutes, but still erased more than $800 billion of market value during that time.

Equity markets outside the U.S. were also rocked by the episode. Canada’s S&P/TSX Composite Index fell 0.3 percent, and Brazil’s Bovespa slid 0.5 percent shortly after the fake Twitter post, according to Bloomberg News.

“It’s one thing for an illiquid stock to do that but how does a multitrillion-dollar market do that?” Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital Associates LLC, in South Carolina, told the news service. “That’s very disturbing to me. It’s unnerving.”

Besides stocks, other types of securities also felt the effect of the event. Gold briefly gained $5 per troy ounce before returning to $1,409, and the dollar fell against the Japanese yen before rebounding within a few minutes.