- Associated Press - Wednesday, May 23, 2012

NEW YORK — A big final-hour comeback pulled the Dow Jones industrial average nearly back to where it started Wednesday.

The Dow was down as much as 191 points earlier as the threat of a financial crisis spreading from Europe shook markets. The euro dropped to a nearly two-year low against the dollar, and oil prices sank to their lowest this year.

A late surge of buying erased nearly all of the Dow’s deficit, leaving it down just 6.66 points at 12,496.15 by the end of the day. Other indexes ended slightly higher.

In the last hour of trading, news crossed that the leaders of France and Italy favored using region-wide bonds to support Europe’s economy. That gave traders hope that a summit of European leaders might produce concrete steps to tackle the economic morass there. The Organization for Economic Cooperation and Development warned Tuesday that the 17 countries that use the euro risk falling into a “severe recession.”

Analysts and investors have turned increasingly skeptical this month that European leaders will prevent Greece from dropping the euro or agree on ways to jump-start the region’s economy. The Dow has lost 5 percent this month, nearly wiping away its gains for the year. It has risen only three days in May.

Plenty of good ideas to buttress Europe’s financial system have been floated in recent weeks, said Paul Zemsky, global head of asset allocation at ING Investment Management. Eurobonds could be sold by countries in the currency union to raise money for bailouts and banks. Some have proposed insuring bank deposits across countries that use the euro, a program modeled on the U.S. Federal Deposit Insurance Corp.

“There are all these great ideas,” Zemsky said. “But there’s nothing yet. There’s a lot of talk and no follow through.”

Benchmark stock indexes dropped more than 2 percent in Germany and France and 3 percent in Spain and Italy.

The euro continued to fall against the dollar, reaching $1.25, the lowest since July 2010. Concerns about the stability of the European currency union if Greece leaves have knocked 5 percent off the euro this month. Yields on German government bunds fell as money shifted into low-risk investments.

If Greece exits, it could spread havoc throughout the global financial system. Bond traders could dump the bonds of Spain and Italy, sending their borrowing costs even higher. Banks in those countries could also be crippled if people start to yank money out of them, as has begun to happen in Greece.

“There’s just a tremendous amount of ‘what ifs’,” Zemsky said. “If Greece leaves, I know equities are going to be a lot lower than they are today. It’s not even close to being priced in yet.”

Facebook rebounded 3 percent to $32 after getting pounded for two days following an initial public offering that was plagued with technical problems and has drawn scrutiny from regulators. The stock is still far below its initial price of $38.

The Standard & Poor’s 500 index rose 2.23 points to 1,318.86. The Nasdaq rose 11.04 points to 2,850.12.

Benchmark crude lost $1.95 to $89.90 in New York trading. Oil has plunged 15 percent in May as investors predict that the European economy will continue to slow.

The dollar rose and yields on U.S. government debt fell as traders shifted money into the protection of Treasurys. The yield on the 10-year note sank to 1.73 percent, close to a record low, from 1.77 percent late Tuesday.

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