- Associated Press - Thursday, August 4, 2011

NEW YORK — Gripped by fear of another recession, the financial markets suffered their worst day Thursday since the crisis of 2008. The Dow Jones industrial average fell more than 500 points, its ninth-steepest decline ever.

The sell-off wiped out the Dow’s gains for 2011. It put the Dow and broader stock indexes into what investors call a correction — down 10 percent from the highs of this spring.

“We are continuing to be bombarded by worries about the global economy,” said Bill Stone, the chief investment strategist for PNC Financial.

The day was reminiscent of the wild swings that defined the markets during the crisis three years ago. Gold prices briefly hit a record high, oil fell an extraordinary $5 a barrel, and frightened investors were so desperate to get into some government bonds that they were willing accept almost no return on their money.

It was the most alarming day yet in the almost uninterrupted selling that has swept Wall Street for two weeks. Since July 21, the Dow has lost more than 1,300 points, or 10.5 percent of its value. It has closed lower nine of the 10 trading days since then.

For the day, the Dow closed down 512.76 points, at 11,383.68. It was the steepest point decline since Dec. 1, 2008.

Thursday’s decline was the ninth-worst ever by points for the Dow. In percentage terms, the decline of 4.3 percent does not rank among the worst. On Black Monday in 1987, for example, the market fell 22 percent.

Two weeks ago, investors appeared worried about the deadlocked negotiations in Washington over the debt ceiling. Almost immediately after that was solved, concerns about the economy took over, and the selling only accelerated.

On Thursday, growing fear about the weakening U.S. economy was joined by concern in Europe that the troubled economies of Italy and Spain might need help from the European Union.

The European Union has already given financial assistance to Greece and Ireland, two countries that have struggled to pay their debts. A financial rescue package for Italy or Spain might be more than the group of countries can handle.

Traders also unloaded stocks before Friday’s release of the government’s unemployment report for July, which is expected to show only weak job growth and perhaps a rise in the unemployment rate, which is 9.2 percent.

Together, they produced “a perfect storm of selling,” said Ryan Larson, head of U.S. equity trading for RBC Global Asset Management.

Not long ago, Wall Street had mostly convinced itself that the U.S. economy would improve in the second half of the year. Gas prices were falling, and Japanese factories were resuming production after disruptions from the March earthquake.

Then one report after another began to show that the economy was much weaker than first thought.

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