Wall St slammed by recession fears

RISING fears of another recession hammered US stocks yesterday, sending major averages sharply lower in a return to the extreme fluctuations investors endured a week ago.

New worries about the health of European banks set the tone before the market’s open, and a dismal report on regional US manufacturing fueled a downward spiral in which the Dow dropped as much as 528 points, spurring a flight to safe-haven assets like gold.

The Nasdaq ended more than five per cent lower, the S&P 500 more than four per cent and the blue-chip Dow off more than three per cent. Thursday marks the sixth time in the past two weeks that the S&P 500 has moved by four per cent or more.

“Are we going to go into recession? Most market participants were looking for slow and steady growth, but the statistics and the financial situation here and in foreign economies have disturbed that view,” said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.

The Dow Jones industrial average fell 419.63 points, or 3.68 per cent, to 10,990.58, while the Standard & Poor’s 500 Index declined 53.24 points, or 4.46 per cent, to 1,140.65, and the Nasdaq Composite Index dropped 131.05 points, or 5.22 per cent, to 2,380.43.

The losses resumed a slide in stocks that began in late July and seemed to moderate in the last few days. In a more worrisome sign, volume was heavier than on recent positive days, with 11.4bn shares changing hands, the highest so far this week.

“It almost feels as though the floor in its entirety is clearly engaged in executions, but the overall theme is resignation,” said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

Kenny said that traders are increasingly resigned to the idea the market trend is downward.

“What can you do about a trend that seems to be well established? It's the new -- I hate to say it -- it is the new normal,” he said.

Volatility jumped, with the CBOE Volatility Index or VIX, a barometer of Wall Street anxiety, up 38 per cent at 43.56. More investors were taking out protective positions against declines in the market.

The S&P 500 is now off 16.4 per cent from its April 29 closing high, but the benchmark index still ended above its slump on 9 August, when it fell to 1,101.54.