Nerves of jelly

• Dow, world markets battered; recession fears mount

More signs of economic weakness triggered a global sell-off in stocks Thursday. The Dow Jones industrial average fell more than 400 points in a return to the wild swings in the market last week.

In the United States, there were reports that more people joined the unemployment line last week than a week earlier, gasolene prices contributed to higher inflation and manufacturing slowed in the mid-Atlantic.

In Europe, bank stocks slid on worries about the region's debt problems. In Asia, Japan's exports fell for the fifth straight month.

The US and European economies are "dangerously close to recession," Morgan Stanley economists wrote in a report. "It won't take much in the form of additional shocks to tip the balance."

The Dow Jones industrial average was down 409 points, or 3.6 per cent, to 11,001 at noon. The Dow was down by as much as 528 points about a half-hour into trading.

The Standard & Poor's 500 index fell 46 points, or 3.9 per cent, to 1,147. The Nasdaq composite fell 105, or 4.2 per cent, to 2,406.

Last week was one of the wildest in Wall Street history. The Dow moved more than 400 points on four straight days for the first time.

But stocks had been relatively stable this week because investors were calmed by strong earnings reports. The Dow had fallen 76 points Tuesday and risen four points Wednesday - the first time this month that the average rose or fell by less than 100 points on two straight days.

That ended Thursday. And with stocks down big, money flooded into US Treasurys and gold, both considered safer investments.

The yield on the 10-year Treasury note briefly fell below two per cent for the first time, before recovering to 2.07 per cent. Low yields show that investors are willing to accept a lower return on their money in exchange for safety.

Demand for government debt has stayed high, and yields low, even after Standard & Poor's stripped the United States of its top credit rating.

Gold rose $26.30 per ounce to US$1,820.30 after earlier climbing to a record of US$1,829.70. That's up from US$1,400 at the start of the year and more than double the price several years ago. The price of gold has set one record after another, with some investors looking for stability and others simply looking to cash in.

The Morgan Stanley economists cut their forecast for growth in developed economies this year to 1.5 per cent from 1.9 per cent.

Over the past 20 years, growth for developed economies has been closer to 2.3 per cent.

In the meantime, worries about European debt hang over the markets.

A default by any country would hurt the European banks that hold European government bonds, plus American banks that have loans to their European counterparts.

"Europe is the big question in the market, and nobody really knows what happens from here," said Scott Brown, chief economist at Raymond James.

Asian markets started Thursday's drop. Japan's Nikkei 225 index fell 1.3 per cent. South Korea's Kospi stock index fell 1.7 per cent, and India's Sensex index fell 2.2 per cent.

The declines extended to Europe. In London, the FTSE 100 index fell 4.5 per cent after a report showed that growth in British retail sales slowed more than economists expected last month. Germany's DAX index fell 6.5 per cent.

- AP