Futures Hit 'Flash-Crash' Levels on Euro Fears

US stock index futures pointed to another sharp market drop, with European markets also struggling, following a drubbing in the previous session as the Dow saw its worst point loss in 15 months.

Wall Street officially entered correction territory on Thursday, with the Dow falling 3.6 percent by close. Renewed concerns about the euro zone along with lackluster US economic data fueled investor anxiety.

Friday was looking to be another worrisome day as futures fell below the intraday plunge of the May 6 "flash crash" that saw the Dow plunge nearly 1,000 points.

Analysts on Thursday predicted the S&P 500 could fall to the 1050 level or worse, but futures indicated that could be the starting point for the markets Friday. Futures of the broad index were right at the 1060 level with less than two hours before the market open, and the Dow futures were below 10,000.

Financials were likely again to lead the way lower, the day after Congress passed the new financial reform bill. The SPDR Financial exchange-traded fund was 1 percent lower in premarket trading.

Both houses of the German government now have approved a $1 trillion safety net for financially troubled euro zone nations as an EU task force looks to toughen regulations.

The strong-dollar weak-euro trade had been predicting market movements, but that has begun to break down. Futures were weaker even as both the dollar gained against a basket of foreign currenices and the euro firmed against the dollar.

Treasurys continued to be the main beneficiary of the market turmoil, with the yield on the 30-year bond falling before 4 percent.

Asian markets also tumbled on Friday, with Tokyo and Taipei slumping 3 percent at one point, as persistent worries over the euro zone debt crisis and its negative impact on the global economic recovery sent investors heading for the exits.

The CBOE Volatility Index , a closely-watched gauge of fear, jumped 25 percent on Thursday to 46, its highest level since March 2009. The VIX has rallied 50 percent so far in May. Year to date, the VIX is now up 114 percent, having jumped more than 73 percent over the past five days alone. A VIX reading higher than 30 is considered a sign that investors are getting worried.

Commodities were lower across the board on Friday, including the “safe haven” gold, continuing Thursday’s downward pressure.

Investors also rushed to long-term US government debt.

Crude oil futures fell in morning trading. Oil companies were also weak, BP shares slipped 2.2 percent as the company struggles to contain the oil spill in the Gulf of Mexico.

“I think the pull off in gold is fast money off the table," Cameron Hanover President Peter Beutel told CNBC.

"In the next few days, we’re focused on large European banks. There's serious issues in the banking system their going to have to look at, as well as any potential exposures to toxic European sovereign debt."

There is no major economic data scheduled for release on Friday.

But Dell will be on investors’ radar today after its quarterly sales and profit beat expectations, but its gross margin fell short of analysts' forecasts and the computer maker warned that components supply will remain tight.

Gap announced it slightly better-than-expected quarterly results on Thursday, and sees expansion for 2010.