Stocks remained substantially weaker ahead of the close Tuesday as investors focused on the European Union's efforts to address Ireland's debt troubles and inflation in China.
TheDow Jones Industrial Average was down more than 180 points, after eking out a gainMonday even as stocks slumped in the last hour of the trading session.
Earlier, the Dow was down more than 200 points, dipping below 11,000 for the first time in more than a month.
Travelers, Alcoa, and General Electric led the blue-chips lower. Home Depot and Wal-Mart were the only Dow components trading higher.
The S&P 500 and the Nasdaq were also lower. The Dow and the S&P were on pace for their biggest drops since mid-August, while the Nasdaq's drop was the biggest for the index since October.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, soared more than 10 percent above 22.
The key S&P 500 sectors all skidded, led by energy, materials and financials.
The dollar , meanwhile, rose against a basket of currenciesand the euro, as Ireland's troubles weighed on the currency. The index hit its highest level since Sept. 28.
The European Union was weighing a rescue package for Ireland that would include the International Monetary Fund, according to the Wall Street Journal. The money would come from the European Financial Support Facility, which was formed in the wake of Greece's near-default last May, the Journal said.
European finance ministers were meeting in Brussels to discuss a mechanism for resolving the euro-zone crisis. A possible bailout of Ireland had been expected to be on the table. Meanwhile, Austria is accusing Greece of not living up to commitments for it's EU aid package. Austria has not submitted its contribution to the bailout fund.
European shares posted their biggest one-day drop since July 1 and the lowest close in two weeks.
Meanwhile, Chinese shares sank nearly 4 percent to a one-month lowon reports that China will unveil food price controls and crack down on commodity speculation to contain inflationary pressure.
Commodity prices fell across the board. Oil prices skidded more than 2 percent to just above $83 a barrel, while gold fell below $1,340 an ounce.
While the market drop was deep and widespread, Keith Springer of Springer Financial Markets, said the downdraft reflects a lack of good news for the market to consider rather than bad news out of Europe or China. Market participants have been hearing about rising inflation in China, and Irish debt troubles for some time, he said.
"There's no positive news to counteract any of the negative news, which really isn’t all that bad," Springer said. "The market is using this as an excuse to step back and sell off a little bit."
Springer believes the market could sell off 3 to 5 percent from its highs before the Fed's stimulus plans take effect and the market starts moving higher. He expects the Dow could rise as high as 13,000 and the S&P 500 could hit 1,250 before a bigger correction occurs.
Basic materials, which have benefited from the booming demand from China, were among the biggest losers in U.S. trading. Freeport-McMoRan , Alcoa and Monsanto tumbled.
Investors were also skittish about the U.S. economy amid differing views of the Fed's plans to stimulate the economy through asset purchases, and how a new, Republican-dominated Congress will address policy concerns, such as the budget deficit, noted Barbara Marcin, portfolio manager at the Gabelli Blue Chip Value fund.
"I think people in general feel there’s very little growth in the U.S. for the next year or so," Marcin said.
As a result, she focuses on stocks with strong top-line or revenue growth that can weather a mediocre growth environment. "We're looking for companies where you can get some sort of return over the next year or so," she said.
Companies Marcin likes include Kraft , Honeywell, Covidien and Tupperware.
Shares of Dynegy soared after news Blackstone Group raised its bid for the power-plant operator by 11 percent.
A handful of retailers reported earnings this morning that were largely positive across the board, although shares were mixed. Home Depot shares rose after the home-improvement retailer posted net earnings of 51 cents per share, up from 41 cents per share in the same period last year. The firm also raised its guidance for the full year.
Wal-Mart shares also climbed after the big-box retailer posted a higher profitand raised its full-year earnings forecast. However, U.S. same-store sales declined as its shoppers remain under pressure in a weak economy.
Saks declined even after the high-end luxury retailer
Abercrombie & Fitch slipped even after the apparel maker posted a bigger quarterly profit and the teen apparel retailer beat estimates, led by strong demand in international markets.
TJX also slid even after the retailer reported higher earnings as the firm benefited from shoppers interested in getting the most from their dollar.
The retail sector was mostly lower, although there were some bright spots after better-than-expected October retail sales data.
Mattel jumped more than 5 percent after the toymaker announced it
And Lowe's continued to advance after the home-improvement retailer reported a higher profit Mondayas the firm kept a rein on costs while shoppers remained guarded in their spending.
Honeywelllowered its forecast for earningsthis year, but the revision reflects a change in pension accounting.
Big money managers reported quarterly holdings after the market closed Monday. Berkshire Hathaway added Bank of NY Mellon to its holdings. The filing showed Berkshire shed shares of Home Depot, Republic Services , Carmax , Iron Mountainand NRG Energy .
On the economic front, an index of home building sentiment in the U.S. rose slightly, but less than expected, for a second month, although the index remains historically low, according to a survey released by the National Association of Home Builders/Wells Fargo Housing Market on Tuesday. The index rose to 16 from 15 last month.
The producer price index rose 0.4 percentin October, the same level as September, but core PPI, which excludes volatile food and energy prices, fell 0.6 percent, after rising 0.1 percent in September. The drop was the biggest since July 2006, and has triggered disinflation concerns.
U.S. industrial production was weaker-than-expected in October, coming in flat, according to Federal Reserve data released Tuesday. Economists surveyed by Reuters had expected a 0.3 percent gain. Manufacturing rose 0.5 percent, but utilities output dropped 3.4 percent, dragging down the overall index.
The capacity utilization rate, a measure of slack in the economy, was flat at 74.8 percent, 5.8 points below average from 1972-2009.
Foreign buying of U.S. debt fell in September, although China and Japan, top buyers, added to their holdings, U.S. Treasury Department said Tuesday. The net long-term capital inflow fell to $81 billion in September, from an inflow of $128.7 billion a month earlier.
And New York Fed President Bill Dudley backed up comments from Treasury Secretary Timothy Geithner last week by saying that Fed policy is not intended to weaken the dollar.
Coming Up This Week:
TUESDAY: Atlanta Fed Pres Lockhart speaks
WEDNESDAY: Weekly mortgage applications, CPI, housing starts, oil inventories, St. Louis Fed Pres Bullard speaks, GM IPO pricing, LA auto show kicks off, Qualcomm analyst meeting; Earnings from Target and Applied Materials.
THURSDAY: Weekly jobless claims, leading indicators, Philadelphia Fed survey, Cisco shareholder meeting; Earnings from Dell and Gap.
FRIDAY: Bernanke speaks at ECB Central Banking Conference, Harry Potter movie premieres.
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