Dow Tumbles 265 Points as Recovery View Darkens

NEW YORK (TheStreet) -- Investors fled to safer assets like the U.S. dollar and Treasury securities Wednesday, sending stocks sharply lower as the market interpreted the Federal Open Market Committee's decision to reinvest proceeds from maturing mortgage-backed securities in U.S. Treasuries as a loss of confidence in the economic recovery.

The Dow Jones Industrial Average lost 265 points, or 2.5%, to close at 10,379. The S&P 500 shed 32 points, or 2.8%, to finish at 1089 and the Nasdaq closed lower by 69 points, or 3%, at 2209.

The New York Federal Reserve also unveiled a schedule for the reinvestment plan, saying the bank would buy up about $18 billion in Treasuries through the middle of September.

Yields on 10-year U.S. Treasury sank to a low not seen since March 2009 following the Fed's decision to purchase more Treasury securities.

"The bond market has been a consistent and correct voice in the market," said Len Blum, managing partner at Westwood Capital. "It's been telling us for a some time that there are no inflationary pressures, and, in fact, there may be more deflationary pressures. It certainly continues to be a reasonable investment since there aren't many risks to the downside. The only thing that would cause yields to increase would be inflationary pressures, and I just don't see that happening,"

Blum also said his overall view of the economy hasn't changed.

"Some of the problems that got us into the recession are still lingering, so everything isn't fixed. Meanwhile we still have a very damaged consumer, Washington's stimulus has burned off and they don't have a lot of options left in their toolkit. Plus, banks continue to be saddled with bad assets and aren't lending."

"What's happening is that every time the market tries to advance a little, the fundamentals come back and rear their ugly head," he said, adding, "While we're not likely to experience a double-dip, we will experience slow growth that will be painful."

Global markets tumbled on the Fed's weaker economic outlook, and the Bank of England gave one of its own, saying the U.K. recovery will likely continue at a slower pace than it previously forecast.

Meanwhile, China's National Bureau of Statistics said its consumer price index rose 3.3% year over year in July as food prices jumped 6.8% because of heavy flooding in the country.

Overseas, Hong Kong's Hang Seng declined 0.8%, and Japan's Nikkei lost 2.7%. The FTSE in London was shed 2.3%%, and the DAX in Frankfurt lost 2.1%.