Signs of a subdued economic recovery sent investors out of stocks Thursday and in search of safer assets like the dollar.
Major indexes tumbled about 1 percent, including the Dow Jones industrial average, which lost 94 points but ended well off its low. Energy and material stocks logged some of the biggest losses as a jump in the dollar sent commodity prices tumbling. Meanwhile, an analyst's downgrade of the chip industry pulled technology shares sharply lower.
As stocks fell, investors flocked to the dollar and Treasurys. The yield on the three-month T-bill, considered one of the safest investments, tumbled to its lowest level since December. The Chicago Board Options Exchange's Volatility Index, also known as Wall Street's fear gauge, rose more than 4 percent.
Overseas markets also fell sharply.
The day's trade was a shift out of riskier assets and back into safe havens like the dollar and Treasurys. After amassing significant gains during an eight-month rally in stocks, investors are hesitant to take on too many extra risks as the year ends, worried that the economy's rebound might not be sustainable.
"Large money managers, going into the end of the year, are looking to protect their gains and are shifting assets," said Adam Gould, senior portfolio manager at Direxion Funds in New York.
For much of this year, investors have been selling dollars and putting their money in riskier assets like stocks and commodities that have the potential to earn higher returns.
Now, investors are wondering whether the dollar's slide has run its course and whether other markets have gotten overheated considering the many challenges to the economy including high unemployment.
Reports on the economy gave investors little incentive to hold on to stocks. Figures from the Labor Department indicated that employers are still shedding jobs, and the Mortgage Bankers Association reported a surge in foreclosures.
Still, analysts warn that the dollar's rise Thursday doesn't necessarily mark the beginning of a long-term move. Record-low U.S. interest rates could continue to weigh on the dollar.
Jon Biele, head of capital markets at Cowen & Co., said investors are searching for direction.
"There are a lot of questions out there and not a lot of answers. When you don't have the right information you don't do anything," he said.
The Dow fell 93.87, or 0.9 percent, to 10,332.44, after being down as much as 170. It was the Dow's biggest point drop since Oct. 30.
The broader Standard & Poor's 500 index fell 14.90, or 1.3 percent, to 1,094.90, while the Nasdaq composite index fell 36.32, or 1.7 percent, to 2,156.82.
The Russell 2000 index of smaller companies fell 14.47, or 2.4 percent, to 585.68.
Bonds rallied as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.37 percent late Wednesday. The yield on the three-month T-bill was flat at 0.02 percent after falling as low as 0.005 percent.
The ICE Futures US dollar index, which measures the dollar against other major currencies, gained 0.3 percent, weighing on commodities. Gold inched higher, while oil prices dropped $2.12 to settle at $77.46 a barrel on the New York Mercantile Exchange.
"There might be a little fear out there about dollar strengthening, as well as some natural profit-taking opportunities," said Dan Cook, senior market analyst at IG Markets Inc. in Chicago. "We've been on an amazing run."
The stronger dollar also makes U.S. goods and services more expensive overseas. U.S. companies that do business abroad make less money when their earnings are translated from other countries' currencies into dollars.
Among the day's economic news, the Mortgage Bankers Association said more than 14 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of September. Investors are worried that loan defaults could rise as long as unemployment increases.
The government said the number of newly laid-off workers seeking unemployment insurance was unchanged last week at 505,000. The figure remains above the level that would indicate the economy is adding jobs.
Meanwhile, a private group's forecast of economic activity rose less than expected in October, signaling slow growth next year. The Conference Board said its index of leading economic indicators, which forecasts activity over the next six months, rose 0.3 percent last month.
The market's losses added to a modest drop Wednesday that followed a drop in home construction and worse-than-expected forecasts from technology companies.
Tech shares fell again after chipmakers, including Intel Corp., were downgraded.
"If a company like Intel isn't going to do as was well as people think, then that has many ripple effects," said Gould of Direxion Funds.
Intel lost 4.1 percent, sliding 82 cents to $19.30. Texas Instruments Inc. fell 87 cents, or 3.4 percent, to $24.88, while Advanced Micro Devices Inc. fell 27 cents, or 3.7 percent, to $7.05.
Five stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.1 billion shares, in line with Wednesday.
Overseas, Britain's FTSE 100 fell 1.4 percent, Germany's DAX index lost 1.5 percent, and France's CAC-40 slid 1.8 percent. Earlier Thursday, Japan's Nikkei stock average fell 1.3 percent.