A specialist works at his post on the floor of the New York Stock Exchange Friday, Sept. 9, 2011. (AP Photo/Richard Drew)
A specialist works at his post on the floor of the New York Stock Exchange Friday, Sept. 9, 2011. (AP Photo/Richard Drew)
Traders work on the floor of the New York Stock Exchange Friday, Sept. 9, 2011. (AP Photo/Richard Drew)
Former New York Stock Exchange Chairman Richard Grasso, left, is greeted by current NYSE CEO Duncan Niederauer as Grasso arrives at the exchange Friday, Sept. 9, 2011. Grasso is participating the exchange's Sept. 11 commemoration. (AP Photo/Richard Drew)
Former New York Stock Exchange Chairman Richard Grasso, right, gets a tour of the trading floor from NYSE CEO Duncan Niederauer Friday, Sept. 9, 2011. Grasso is participating the exchange's Sept. 11 commemoration. (AP Photo/Richard Drew)
The problems that weighed down stocks all summer show no sign of letting up.
U.S. stocks plunged Friday, erasing the week's gains, as rising fears about fallout from Europe's debt crisis overshadowed President Barack Obama's plan to revive the U.S. job market.
The resignation of a key official from the European Central Bank was the latest sign of deepening disagreement over how to solve Europe' economic problems. And it's not clear to traders that the president's jobs plan can pass through a divided Congress.
Traders fear that Europe's failure to address its debt crisis might tip the world economy back into recession. They pushed the Dow Jones industrial average to its steepest decline in more than three weeks of wild swings.
"Markets always vacillate between fear and greed, and today we're coming down pretty much all on the fear side," said Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group.
Shortly after 1:30 p.m., the Dow lost 309 points, or 2.7 percent, to 10,987. The Standard & Poor's 500 index fell 31, or 2.6 percent, to 1,155. The Nasdaq composite index slipped 58, or 2.3 percent, to 2,471.
All three indexes are lower for the week. The Dow is down more than 2 percent. It has fallen in five of the past six weeks, and four of the past five trading sessions.
Word that Juergen Stark, the top economist at the ECB, resigned came shortly after the U.S. markets opened. He was an advocate for higher interest rates. Published reports said he left because he opposed the bank's extensive purchases of debt issued by heavily-indebted member nations.
Stark's resignation came as financial leaders from the world's most developed economies are meeting in France to hash out plans for reviving the struggling global economy.
His departure rattled traders because the U.S. economy "teetering on the verge of recession," and the outcome in Europe might determine which way it goes, said Andrew Goldberg, market strategist with J.P. Morgan Funds. He said traders are latching onto any piece of news that might signal a positive or negative outcome in Europe.
If the ECB can't come to an accord, Europe could experience a serious financial crisis. Banks there hold an unknown amount of bonds issued by heavily-indebted nations such as Greece, Ireland and Portugal. If one of those nations defaults, the bonds would lose value quickly. Banks might stop lending to each other because of fears that some might fail.
In that context, Stark's departure from the ECB was seen as "a bit of news that contributes to a worse outcome, so if you're thinking of being a seller, today that's what you are," Goldberg said.
The central bank's troubles give added weight to any decisions from the finance ministers who are meeting this weekend.
On Thursday evening, President Obama unveiled a $447 billion package of tax cuts and new spending aimed at boosting hiring. He spent much of the speech challenging Congress to put aside political theatrics and pass the bill.
It's not clear whether that will happen. Republicans control the House and many of them oppose any new spending. Some reacted by calling the plan a rehash of failed strategies.
Friday's plunge continues a tough quarter for stock markets. Fears about the spreading debt crisis in Europe and the slowing global economy have encouraged traders to sell shares and make bets seen as less risky.
The S&P 500 is down 10 percent since the third quarter started in July. However, it has recovered almost 6 percent since its lowest close this year on Aug. 8.
Analysts said shares are likely to keep falling because conditions in Europe show little sign of improving. If Europe's economy contracts, U.S. companies will likely be hurt. Half of their revenue comes from overseas, and half of that is from Europe, said Sam Stovall, chief investment strategist with Standard & Poor's in New York.
"Maybe the market has already priced in a very, very soft spot, but it has not priced in quicksand ? it has not priced in a recession," he said.
Stovall said recent data make another U.S. recession appear more likely.
The government reported Friday that sales for wholesale businesses were flat in July. It was the worst result since May.
But Fort Pitt Capital's Forrest said the sell-off had brought some share prices "within buying range." She said traders have few other places to invest, with Treasury yields near record lows and currency markets gyrating because of fears about the euro.
Nervous investors have snapped up investments seen as safe, sending Treasury yields to historic lows. The yield on the 10-year Treasury note plunged to 1.93 percent Friday from 2.02 percent earlier in the day. On Monday, the 10-year yield fell to 1.91 percent, the lowest since the Federal Reserve Bank of St. Louis began keeping daily records in 1962.
Markets in Europe skidded lower after the news from the ECB. France's CAC 40 and Germany's Dax fell about 4 percent. London's FTSE lost more than 2.
McDonald's Corp. shares fell after the company said a key revenue metric missed analysts' expectations. McDonald's said that revenue at restaurants open at least 13 months rose 3.5 percent in August. Analysts had expected a 4.9 percent increase.
Shares of Bank of America Corp. dropped 18 cents, or 2.5 percent, to $7.02 after The Wall Street Journal that it might cut up to 14 percent of its workforce as part of a massive restructuring. Bank of America already has cut at least 6,000 jobs this year. CEO Brian Moynihan announced a management shake-up this week.
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Follow Daniel Wagner on Twitter at http://twitter.com/wagnerreports.
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