Stocks plunge as investors rush into safety of bonds, gold

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Global stocks took another tumultuous turn on Thursday, ending five days of relative stability after investors recoiled from a swath of disappointing economic developments that raise the prospect of an oncoming recession.

In mid-morning trading, the Dow Jones industrial average was down 487 points or 4.3 per cent, to 10,923. The broader S&P 500 was down 55 points or 4.6 per cent, to 1,139. In Canada, the S&P/TSX composite index was down 319 points or 12,261.

As well, major European indexes were down at least 4 per cent each in late afternoon trading.

The sharp declines come amid renewed concerns about the European economy. Morgan Stanley slashed its growth estimates for the euro zone for 2011 and 2012. It also cut its global growth estimate to 3.9 per cent from 4.2 per cent previously.

The Wall Street Journal reported that regulators are scrutinizing the U.S. divisions of the major European banks, raising concerns about the European debt crisis landing on U.S. shores.

Meanwhile, U.S. economic news also landed with a thud: Initial jobless claims took a step backward, rising above the 400,000 threshold after showing some improvement in recent weeks. U.S. existing home sales fell 3.5 per cent in July, in an unexpected setback. And the Philadelphia Fed index plunged 33.9 points, well below expectations and reflecting ongoing skittishness among businesses.

Government bonds jumped as investors rushed into the usual havens amid the downturn. The yield on the 10-year U.S. Treasury bond dipped below 2 per cent for the first time ever, meaning that bond prices (which move in the opposite direction to yields) are higher today than they were in the darkest days of the 2008 financial crisis.

Gold also served as a haven, blasting above $1,800 (U.S.) an ounce. The CBOE Volatility index, or VIX, rose above 41, rivalling its recent high of 48 on August 8. The index, known widely as a fear gauge, tends to rise with investor anxiety.

The stock market declines were exceptionally broad, reflecting widespread dissatisfaction with nearly all stocks. All stocks within the Dow were down, including defensive stocks like Procter & Gamble. Within the S&P 500, 496 stocks fell.