Dow Plunges 400 Points as Oil Fans Fears

Stocks plunged as the sharpest jump in the unemployment rate in more than 20 years and rocketing oil prices sparked concerns about stagflation.

The Dow Jones Industrial Average closed at its session low, down 394.64, or 3.1 percent, at 12209.81. The S&P 500 and Nasdaq also lost more than 3 percent.

Major U.S. Indexes

	Last	Change	% Change	1 Week % Change	YTD % Change
Dow	12,209.81	-394.64	-3.13%	-3.39%	-7.95%
NASDAQ	2,474.56	-75.38	-2.96%	-1.91%	-6.70%
S&P 500	1,360.68	-43.37	-3.09%	-2.83%	-7.33%
Russell 2000	740.37	-22.90	-3.00%	-1.06%	-3.35%
CBOE VIX	23.71	5.08	27.27%	32.98%	5.38%

"Short term, the market is very emotional," Jim Huguet, of Great Companies, told CNBC. "The only good news is they rang the bell at four o'clock."

The sell-off was severe enough to erase all of the prior session's rally and then some, leaving the Dow down nearly 430 points, or 3.4 percent, for the week.

This is likely the beginning of capitulation, said Bruce McCain, head of investment strategy at Key Private Bank in Cleveland.

"I think we were in a mood to be disappointed," McCain said. "That's part of the process."

As the market tests March lows, some analysts suggest the market is ripe for bargain hunting.

"History dictates that the seeds of the next bull market are being planted right now. It's very often that first leg up will come amid a gloomy data scenario," said Quincy Krosby, chief investment strategist at The Hartford.

Light, sweet crude oil was on another tear, soaring more than $11 a barrel and smashing the prior session's record jump of $5.49. Crude ended Friday at $138.54 a barrel, putting it up more than $11 for the week -- its biggest weekly gain on record -- and up a whopping 44 percent since the start of the year.

The commodity was still reeling from comments from the ECB president that the central bank might raise European interest rates, as well as remarks from Israel's transport minister that an attack on Iranian nuclear sites appears "unavoidable" and a Morgan Stanley note that oil could hit $150 by the Fourth of July.

AIG and American Express were the top decliners on the Dow. Chevron had been the lone star rising on the Dow for most of the day, but even that light went out by the closing bell and all 30 Dow stocks finished lower.

For the week, Hewlett-Packard and Verizon were the best performers on the Dow as early cyclicals such as technology are getting more play and on news this week that Verizon plans to buy Alltel, creating the largest wireless carrier in the U.S., eclipsing AT&T .

Not surprisingly, Bank of America and AIG were the worst Dow performers this week.

Financials took it on the chin this week, with bond insurers Ambac and MBIA losing more than 20 percent for the week after S&P cut its triple-A credit ratings on the firms and other ratings agencies threatened to do the same.

Traders cranked up the volume on chatter about Lehman Brothers this week, with rumors swirling that the firm had visited the Fed's stigmatized discount window -- which the firm denied -- and that it was scrambling to raise more capital, maybe even looking for overseas partners.

Executives, tired of the noise, are mulling a pre-announcement of the firm's second-quarter results in an effort to dispel market rumors that it is facing a liquidity crisis, people close to the investment bank told CNBC.

Lehman has traditionally released its earnings for the second quarter during the week of June 16, which is in two weeks. But people close to the company said the firm is considering bumping it up to next week, when earnings are also expected from Morgan Stanley and Goldman Sachs