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Though the package is ultimately expected to gain approval, voters in countries in Germany and other euro-zone members are resistant to spending money to prop up another nation. As politicians deal with those regional politics, it could further delay the package, prolonging the uncertainty that has gripped financial markets.
"This feels a lot like 1997 and 1998," when financial crises gripped Asia and Russia, said Brian Belski, chief strategist at Oppenheimer Asset Management. "In just a couple of days, we've gone from a super-bullish mentality to a super-bearish mentality driving the markets."
Key short-term credit markets—such as the market for three-month Libor—began to show signs of stress and corporate bonds tumbled.
New York Stock Exchange composite volume hit 10.6 billion shares, a new high for 2010. The previous record was set April 16 when the government filed fraud charges against Goldman Sachs Group.
Traders described Thursday's trading as driven largely by automated sell orders, which piled up after several technical barriers were breached, in particular the 1150 level on the S&P. "A lot of people thought we had support around that level, so there was some disappointment that it didn't hold," said Phil Roth, chief technical analyst at Miller Tabak.
But he added: "The numbers themselves are a little less important than the manner in which the market gets there. The important thing is that we've had a very non-traditional bull market, without any major correction or several years of advances alternating with sideways periods. This could be the thing that sets off a real correction, but we'll have to wait and see."
Traders leaving for the day in New York faced a growing media hoard waiting for them. They described the session as like a "rollercoaster," "madness" and just plain "crazy."
One trader who has been on the floor for more than 20 years said he'd never seen it like Thursday. "We were just watching the trades go through and nothing was getting down to us on the floor," he said. "We were blindsided." Others said there was an eerie calmness to the ride. "It was kind of somber," one said. "It wasn't as crazy as you'd expect."
The S&P ended at 1128, off 3.2%, hurt by declines in every sector. The Nasdaq Composite Index fell 3.4%.
Despite the drop on Thursday, "right now there is no difference in the U.S. economic recovery that we all were expecting."
Circuit breakers didn't come into play in halting the decline. The low came after 2:30 p.m., a time after which the NYSE doesn't halt trading unless the Dow falls by 20%.
The Dow Jones Industrial Average plummeted 998.50 points Thursday, its largest intraday drop ever. Neal Lipchutz details the trading frenzy across markets, spurred in part by riots in Greece and the deteriorating debt crisis in Europe.
In a flight to safety, investors snapped up U.S. Treasury bonds, pushing their yields as low as 3.27%, their lowest since last December. They recently traded at nearly 3.34%, still an unusually large decline from more than 3.5% at the start of the day.
Amid the carnage, gold also reestablished its position as a safe haven, rising nearly 3% to move than $1,200, trading at its highest levels in five months
Other fear indicators widened quickly, though were still much lower than ahead of the crisis in 2008. The spread between three-month Libor and overnight indexed swaps, which had been creeping wider in recent days, stretched quickly to 14 basis points, or 0.14 percentage point, from 9 basis points at the start of the day, the widest since last September. At the height of the crisis that spread, a closely watched measure of credit risk, was wider than 100 basis points.
The Markit CDX index tracking the cost of insuring against the default of investment-grade corporations jumped more than 25% at the worst of the days's selloff to its highest levels since last July, and was recently up more than 20%.
Oil was down about 5%, and copper fell 1.1%, losing ground for the fourth consecutive day of trading. Prices for those raw materials, and a host of others widely used by consumers and industry, were driven down by mounting fears about stress from European debt woes and questions about Chinese growth.
Biggest Dow Drops
Below are the biggest closing point drops in the history of the Dow Jones Industrial Average.
Date Close Points/%
9/29/2008
10365.45
-777.68/-6.98%
10/15/2008
8577.91
-733.08/-7.87%
9/17/2001 8920.70 -684.81/-7.13%
12/1/2008 8149.09 -679.95/-7.70%
10/9/2008 8579.19 -678.91/-7.33
Source: WSJ Markets Data Group
"It's exactly the same thing" as what's troubling the stock market, said Edward Morse, the global head of commodity research at Credit Suisse. "The decline has been across the board, except for gold."
"We're in total freefall right now," said Joe Benanti, managing director at Rosenblatt Securities. "It's a true flight to safety and to tell you the truth, people are seeing what's going on in Athens on CNBC and it's not helping the market at all. You're just watching things sort of melt away. I was thinking back to the fall of 1987. When you get these real downdrafts, you have people just walking away and waiting for it to find a floor because you don't want to get in when it's still falling."
Investors also remained deeply worried Thursday about the unfolding drama of Europe's efforts to prop up Greece's finances. Despite boisterous street protests, Greece's parliament passed a bill with austerity measures that will give the country access to an assistance package jointly offered by the European Union and International Monetary Fund. Other EU members will take votes in their respective parliaments soon to approve spending on the package, with a first test expected in Germany on Friday.
"A lot of traders are getting carried out of there seats. There are lots of liquidations including hedge funds out of riskier assets," Michael Franzese, head of Treasury trading at Wunderlich Securities in New York. "No one was expecting this sell off in stocks and the euro and a flight to quality trade is in full effect and it not yields levels it just capital preservation."
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While the bailout is expected to pass in Germany and elsewhere, it remains unpopular among voters who don't want to see their respective countries' resources used to solve Greece's problems. Traders said that any hints of populist backlash could slow the package's implementation or lead to omission of elements needed to prevent global economic contagion.
"Some of the panic-mode has come in now," said Jay Suskind, senior vice president at Duncan-Williams. "What you're seeing in Greece—even the pictures on the television with the protests starts to spark some real fear."
Investors said they were worried about potential contagion from Greece's ongoing problems, and whether eventual losses could even exceed those of the U.S. housing collapse.
"You worry about the a domino effect, from Greece to Portugal to Ireland and Spain," said Richard Schottenfeld, general partner of Schottenfeld Associates, a New York hedge fund. "Pretty soon those kinds of losses are bigger than housing."
—Dan Fitzpatrick, David Benoit, Donna Kardos Yesalavich and Kristina Peterson contributed to this article.
Write to Peter A. McKay at peter.mckay@wsj.com
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