NEW YORK -- Stocks and interest rates fell sharply Wednesday as more bad news chipped away at investors' view of the economy.
The Dow Jones industrial average fell 265 points, and all the major indexes fell more than 2 percent and are now showing losses for the year. The Dow has now fallen four days out of five and has lost almost 320 points in just the past two days. Meanwhile, the yield on the Treasury's 10-year note fell to its lowest level since March 2009 as investors avoided stocks and sought the safety of government securities.
Investors' gloom deepened a day after the Federal Reserve said it would begin buying government bonds as a way to stimulate the economy. News of slower industrial growth in China and a disappointing economic indicator in Japan helped send stocks plunging first in Asia, then in Europe.
The economic news in the U.S. was also troubling. The Commerce Department said the trade deficit widened in June to its highest level in 20 months as exports dipped. Falling exports mean U.S. manufacturing could be slowing.
Stock traders tend to base their buying and selling on expectations for what business will be like in six to nine months. But economic data have been so muddled lately that investors have no sense of whether the recovery will hold. In its economic assessment Tuesday, the Fed was still talking about a recovery, although the central bank said it would be more modest than forecast in June.
"Uncertainty, uncertainty, uncertainty," was the way that Javier Perez-Santalla, managing director for futures and foreign exchange at the institutional brokerage firm Dinosaur Group, described the mood in the market.
"Everyone is scratching their heads, saying 'which way?'" Perez-Santalla said. The Fed said Tuesday that it will start buying government bonds with money it gets from the maturing mortgage-backed bonds that it bought during the recession. The goal is to try to cut interest rates on mortgages and corporate loans. But the Fed's moves were expected to be quite small in comparison to what the economy needs. And many investors were selling because the debt purchases would have only a limited effect on the economy.
The Dow dropped 265.42, or 2.5 percent, to 10,378.83, its largest slide since it fell 268.22 on June 29.
The Standard & Poor's 500 index fell 31.59, or 2.8 percent, to 1,089.47. The S&P 500 slipped below 1,100, a key psychological level. Falling and holding below that level could lead to more selling as computer-driven trading sets in.
The Nasdaq fell 68.54, or 3 percent, to 2,208.63. The Nasdaq tends to have the biggest losses when stocks fall sharply because many of its component companies are smaller businesses that struggle the most in a weak economy.
Britain's FTSE 100 fell 2.4 percent, Germany's DAX index dropped 2.1 percent, and France's CAC-40 fell 2.7 percent. Japan's Nikkei stock average dropped 2.7 percent.
