Stocks logged their biggest drop of the year Thursday as investors worried about two events coming Friday — a German vote on the EU bailout and options expiration.
Plus, a vote in the Senate to end debate on financial reform cleared the path for a final vote tonight or tomorrow, which added another layer of selling pressure.
The Dow Jones Industrial Average shed 376.36, or 3.6 percent, to close at 10,068.01, finishing at its session lows after the selloff accelerated in the final minutes of trading.
All 30 Dow components finished lower, led by Bank of America , Alcoa and GE .
The S&P 500 lost 3.9 percent and the Nasdaq fell 4.1%. The CBOE volatility index, widely considered the best gauge of fear in the market,jumped over 25% and was above 44 at the closing bell, its highest level in over a year.
Several market pros offered optimism earlier today but in the last half hour of trading, economist Nouriel Roubini, aka "Dr. Doom," said he sees stocks going down another 20 percent and that cash is the safest place to be.
All three major indexes are now in correction territory, down over 10 percent from their April highs. At this rate, the market is on track for its worst month in over a year.
The Nasdaq was the hardest hit of the three today as most of the tech giants took a beating, with Apple, Google and Intel all down around 4 percent.
The market started off jittery amid worries about Germany acting alone in imposing the ban on some naked short selling and a disappointing jobless-claims report.
European stocks lost more than 2 percent amid worries that Germany's unilateral move banning some naked short selling indicates an inability for the nations to agree and solve their problems. Plus, there were worries that the ban would be extended to the entire euro zone.
Initial claims for unemployment benefits shot up by 25,000 to 471,000 last week, which rattled an already jittery market as economists had expected claims to drop to 440,000. Meanwhile, the Philadelphia Fed reported its gauge of regional manufacturing activity dropped to 21.4in April, slightly more than expected, from 20.2 in March. And leading indicators fell 0.1 percent in April, the first decline in a year.
Financials took a hit, with Bank of America off more than 6 percent and Citigroup off over 4 percent, after the financial regulatory reform bill cleared a key hurdle in the Senate.
Rochdale analyst Dick Bove said banks are still attractive.
Banks "may fall another 10% to 12% reflecting market fears but they are still very attractive investments," Bove wrote in a note to clients. "Longer term, I still expect that these stocks will grow in multiples, not percentages."
Dave Lutz, managing director at Stifel Nicolaus Capital Markets, said there are a "tremendous number of indicators" that suggest the whole market is oversold and "a sharp rally is at hand."
He said it "could be a bit of a sloppy afternoon" but the rally could come tomorrow when Germany votes on the $1 trillion EU bailout — depending on the outcome.
Art Cashin, head of floor operations at UBS, said there's also buzz on the floor that Germany and other markets may be closed Monday for a religious holiday, which could be good for the market as it increases the chances of the EU pulling off some unified measures. Cashin pointed out that what really rattled the market was Germany acting alone.
However, May individual equity options and some stock index options expire at the close of trading Friday, which could add some volatility to the market.
The dollar fell against the euro, after being down on the debt and financial regulation worries earlier.
But commodity prices remained lower, with crude oilending at $68.01 a barrel and goldsettling at $1,187.80 an ounce.
Treasurys jumped on the stock-market turmoil, particularly the longer-dated securities.
In earnings news, office-supply chain Staples reported its profit rose 32 percent but delivered a disappointing outlook.
Sears shares fell 11 percent after the retailer reported a 38 percent drop in profit as higher costs and more markdowns weighed on margins.
Williams-Sonoma shares climbed after the home-goods chain reported a better-than-expected profitand boosted its outlook for the year as consumers started to show signs of a comeback.
GameStop ended lower after an earlier pop as the videogame retailer posted stronger net income, boosted by strong sales of popular games like "Battlefield Bad Company 2" and "God of War III," but a disappointing outlook killed the stock.
Luxury jeweler Tiffany & Co raised its dividend for the second time in 2010, and said it will now pay shareholders 25 cents per quarter for each share they hold, up from 20 cents. Clorox , Safeway and Dr. Pepper Snapple also raised their dividends.
In M&A news, Symantec is paying $1.28 billionfor VeriSign's security business, which specializes in Web site identity and authentication.
After the closing bell, earnings are due from Dell , Gap , and Intuit.
Volume was nearly double the daily average, with more than 2.1 billion shares changing hands on the New York Stock Exchange. Decliners trounced advancers, nearly 30 to 1.
And there were 2.5 million puts on exchange-traded funds today, three times the normal volume.
Still to Come:
THURSDAY: Earnings from Dell & Gap after the bell
FRIDAY: Earnings from Ann Taylor; options expiration
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