NEW YORK ( TheStreet) -- Stocks retreated sharply Wednesday after renewed concerns about the European debt crisis obliterated gains made the previous day.

The Dow broke above 11,000 points in the afternoon but remained in red territory throughout the session. As many investors predicted, Tuesday's rally was short term only, with stocks yet to find a bottom.

By the close, the Dow Jones Industrial Average had plunged 520 points, or 4.6%, at 10,719. The S&P 500 was lower by 52 points, or 4.4%, at 1121, and the Nasdaq was off by 101 points, or 4%, at 2381.

"This may not be the final bottom," said Ralph Fogel, head of investment strategy at Fogel Neale Partners. But, the "increased volatility indicates a change in direction is likely," he continued. Because there has already been a "climatic selling event," Fogel says there is likely little selling left.

"At long as the market stays in this range and does not make a new low, we think that it will move up at least on a short term basis," said Fogel. "At this point, it's like monitoring a patient."

Fresh worries about a debt contagion across the Atlantic stemmed from concerns over European banks, which took a beating after costs to insure French, Greek, Italian and Spanish debt rose. Speculation that France's triple-A credit rating might get downgraded hit French bank stocks particularly badly. Shares of Societe Generale and Credit Agricole closed roughly 15% lower and BNP Paribas lost nearly 10%.

The FTSE in London lost 3.1%, and the DAX in Frankfurt sunk 5.1%. In Asia, markets jumped on the late-Tuesday surge in U.S. stocks. Hong Kong's Hang Seng rose 2.3%, and Japan's Nikkei gained 1.1%.

The uncertainty over the global economic outlook triggered a rush to safe havens, pushing gold prices to another fresh high . Gold for December delivery broke above $1800 an ounce and gained $41 to settle at $1,788 an ounce by the close.

After Treasury yields plunged to a record low yesterday, the benchmark 10-year Treasury rallied further, last up 22/32. The yield dropped to 2.161%, a level close to those reached during the 2008 financial crisis. The dollar strengthened against a basket of currencies, with the dollar index up by 0.9%.


Markets found on firmer footing after fluctuating wildly on Federal Reserve's announcement to keep interest rates near zero through at least mid-2013 . On the one hand, investors welcomed the extra clarity but on the other, were disappointed in a statement that underscored expectations for prolonged sluggish growth.

Some 8.2 billion shares changed hands on the New York Stock Exchange while 3.3 billion shares traded on the Nasdaq. More than 93% of NYSE shares declined while less than 6% advanced.

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Oil prices were rebounding after crude oil supplies fell more than the market expected. . The Energy Information Administration said crude oil supplies fell by 5.2 million barrels last week while analysts had expected an increase of 1.8 million barrels.

Also on Wednesday, the the International Energy Agency cut its global oil demand forecast for 2011 , citing higher prices and weaker economic growth, but raised its estimate for demand growth in 2012 because of "oil-fired power needs in Japan."

The September crude oil contract gained $2.35 to settle at $79.30 a barrel.

In economic news, the Census Bureau said wholesale inventories rose 0.6% in June, falling short of expectations for an increase of 1%. In May, inventories rose 1.7%.

Financial and conglomerate sectors showed the steepest losses. The Financial Select Sector SPDR ETF ( XLF) lost nearly 7% to $12.19. Bank of America ( BAC) and American Express ( AXP) were among the Dow's biggest laggards alongside Walt Disney ( DIS), Boeing ( BA) and United Technologies ( UTX). Cisco ( CSCO), McDonalds ( MCD) and Verizon Communications ( VZ) showed the mildest losses.

Bank of America agreed to sell part of its mortgage portfolio to mortgage finance giant Fannie Mae as the bank tries to shed assets and reduce its reduce its exposure to various mortgage-related problems, according to a Wall Street Journal report. Bank of America's stock shed 11% to $6.77.

Europe's biggest bank, HSBC ( HBC) , agreed to sell its U.S. card and retail services business to Capital One Financial ( COF) for a premium of $2.6 billion. The deal's total value, including the premium, is roughly $32.7 billion, according to a statement from HSBC. Shares of HSBC lost 7.6% while Capital One's stock rose 0.7%.

Shares of Macy's ( M) lost 3.7% to $24.52 despite the easily surpassing consensus estimates with third-quarter earnings of 55 cents a share on revenue of $5.94 billion. Wall Street forecasted a profit of 49 cents a share on sales of $5.87 billion. The company also upped its full-year earnings-per-share outlook to between $2.60 and $2.64 a share.

Swiss food and beverage company Nestle ( NSRGY) blamed volatile markets for its drop in half-year earnings on Wednesday and said the strength of the Swiss franc, in particular, negatively impacted profits.

The U.S. budget deficit narrowed in July, according to the Treasury Department. The gap narrowed to $129.4 billion from $165 billion one year ago. Economists expected to see the deficit narrow to $132 billion in July.

-- Written by Chao Deng and Melinda Peer in New York.

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