Investors began giving in to fears Thursday that a global recession is already under way, and stock markets shuddered around the world. Selling started in Asia, picked up speed in Europe and sent Wall Street near its worst finish of the year.
The Dow Jones industrial average lost 391 points and at one point was down more than 500, a return to the volatility that gripped the market this summer.
One financial indicator after another showed that investors are losing hope that the global economy can keep growing. The price of oil and metals such as copper, which depend on economic demand, fell sharply. Traders bought Treasury bonds and the dollar for safety.
FedEx, which ships so many goods it is seen as a barometer of the U.S. economy, lowered its earnings forecast for the year because customers are putting off purchases of electronics and gadgets from China.
The Dow fell 391.01 points, or 3.5 percent, and closed at 10,733.83. The selling was not just steep but broad: Nineteen stocks on the New York Stock Exchange fell for every one that rose.
"Markets rely on confidence and certainty. Right now there is neither," said John Canally, an economic strategist at LPL Financial, an investment firm in Boston.
It was the second consecutive rout in the stock market since Wednesday afternoon, when the Federal Reserve announced a new strategy for fighting the economic slowdown -- a bid to lower long-term interest rates and get people and firms to spend more.
Economic news was bad around the world. A closely watched survey in Europe indicated a recession could be on the way there, and a manufacturing survey suggested a slowdown in China, which has been one of the hottest economies.
"The probability of going back into recession is higher now than at any point in the recovery," said Tim Quinlan, a Wells Fargo economist, putting the chance of a recession at 35 percent.
Christine Lagarde, head of the International Monetary Fund, said the world economy was "entering a dangerous phase." She told an annual meeting of the IMF and World Bank that nations need credible plans to control their debt.
In the United States, investors poured money into American government debt, which they see as less risky than stocks even as the nation wrestles with how to tame its long-term budget problems.
The yield on the 10-year Treasury note hit 1.71 percent -- the lowest since daily records of the yields started being kept half a century ago. It was 3.66 percent in February, when the economic forecast was brighter.
The Dow almost matched its lowest close of the year, 10,719 on Aug. 10. The stock market was seized by volatility last month, and at one point the Dow strung together four consecutive days of 400-point moves up or down.
In a sign of what a rocky year it has been for the stock market, Thursday's decline isn't even close to the biggest in 2011. The Dow fell 634 points on Aug. 8, 519 points on Aug. 10 and 512 points on Aug. 4.
It would have to fall 485 more points to reach the traditional definition of a bear market -- a 20 percent decline. The Dow was at 12,810 on April 29.
The Fed announced Wednesday that it would shuffle $400 billion of its own holdings in hopes of reducing interest rates on long-term loans. The plan is known as Operation Twist, a nod to a similar approach taken by the Fed in the early 1960s when Chubby Checker was a popular singer.
The central bank hopes that if people and businesses are able to borrow money more cheaply, they will spend throughout the economy and give it a lift.
Still, the Fed announcement troubled investors because it came with a bleak assessment of the future. The Fed said it sees "significant downside risks to the economic outlook," including volatility in overseas markets. "In financial markets, the thinking seems to be: If the Fed is worried, the rest of us ought to be really worried," said Brian Gendreau, investment strategist at Cetera Financial Group.