Markets Plunge for Third Day On Jitters Over EU, Economy

Global stocks plunged for the third day in a row on growing fears that Europe's financial crisis will hurt economic growth and lead to a wider market correction.

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US stocks closed sharply lower. The S&P 500 and Nasdaq both fell into correction territory, having dropped over 10 percent from their most recent highs. The Dow Jones Industrials are nearly down that much with Thursday's close.

The US selloff began after unexpected drop in weekly US jobless claimsand worsened following reports that factory activity in the US Mid-Atlantic region accelerated less than expected in May while an US leading economic indicators marked the first decline in April in more than a year.

The CBOE volatility index, or VIX, widely considered the best gauge of fear in the market,spiked more than 25 percent to around 45, its highest level in over a year.

The European Debt Crisis - See Complete Coverage
The European Debt Crisis - See Complete Coverage

The US dollar rose against a basket of major currencies, while oil fell below $69 a barrel. Spot gold prices rose .

“I’m convinced the markets are really out of control," German Finance Minister Wolfgang Schaeuble told the FT. "That is why we need really effective regulation, in the sense of creating a properly functioning market mechanism.”

But Germany's attempts to bring markets under control appeared to have had the opposite effort. The government's decision late Tuesday to ban some forms of short-sellingof stocks, bonds and derivatives caught its partners in the European Union off guard and sent global markets reeling.

"Investor uncertainty is leading to a flight to quality and safe havens," said Peter Dixon, economist at Commerzbank. "Dumping stocks seems sensible with so much uncertainty on the macro environment, and all fundamental ways of looking at value are out of the window."

Thursday's selloff began in Asia, where the MCI index of Asia-Pacific shares outside of Japan plunged 2.2 percent to an eight-month low. Japan's Nikkei average closed at a new three-month low.

European shares closed sharply lower, extending the previous session's steep fall, on persistent concern other euro zone countries will follow Germany in banning short selling in certain instruments.

"There's still underlying concerns about the European economy and the potential adverse impact on banks going forward," said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh. "Everybody is shying away from the euro on concerns about the economy."

—Reuters contributed most of the reporting for this article