NEW YORK — Stocks plunged Thursday, with the Standard & Poor's 500 Index losing the most in 13 months, as concern grew that Europe's debt crisis is spreading.
The S&P 500 slid 3.9 percent to 1,071.59, closing below its 200-day average for the first time since July 2009. It was the benchmark's biggest drop since April 2009. The Dow lost 376.36 points, or 3.6 percent, to 10,068.01. The Nasdaq Composite Index joined the S&P 500 and Dow in erasing its gains for 2010, declining 4.1 percent to 2,204.01.
"There are a lot of well-known negatives or obstacles to a speedy recovery, specifically in the U.S. economy and even the developed markets around the world," said Charles Stamey at Manning & Napier Advisors in St. Petersburg. "Earlier this year, everyone was assuming that the modest economic improvements were going to continue. It's almost as if the market overshot itself."
The S&P 500 has now fallen 12 percent from its 2010 high on April 23 of 1,217.28. All 30 Dow stocks were down more than 2.2 percent, while all but three of the S&P 500 companies declined. About 20 stocks fell for each that rose on those exchanges.
"This is not a typical retracement," said Mohamed El-Erian, chief executive officer of Pacific Investment Management, which runs the world's biggest bond fund. "We are in uncharted waters on account of several issues, including what is going on in Europe and other important structural regime changes. In economic terms, European developments are unambiguously bad for global growth."
Investors are concerned that the debt problems in Greece and Portugal will spill over to other countries in Europe, cause a cascade of losses for big banks and in turn halt economic recovery in the United States and elsewhere.
"It's starting to look like one of these tragic stories were one person falls through the ice, then everyone else rushes in to help and ends up drowning," independent market analyst Edward Yardeni said.
Analysts are also worried that China might take steps that will limit its economic growth, which would also affect the U.S. recovery. They said the market is vulnerable to rumors about any of the major economies right now.
Investors appear increasingly convinced that European countries will need to adopt stringent spending cuts to pay down their heavy debt loads, Yardeni said. Such cuts would likely lead to long economic slumps for those countries, a prospect that investors may now be accepting as reality as they sell stocks and the euro, the currency shared by 16 European nations, he said.
The euro fell as much as 1 percent to $1.2297, and in the morning was near the four-year low it reached Wednesday before paring the losses. It rose 0.8 percent to $1.2513 at 4 p.m. in New York.
Information from Bloomberg News and the Associated Press was used in this report.