Stocks Drop 2% on Global Slowdown Fears

NEW YORK ( TheStreet) -- Stocks suffered their worst single-day drop in three weeks Thursday as investors were spooked by a gloomy batch of global economic data, a bearish trading call by Goldman Sachs and disappointment with the outcome of the Federal Reserve's latest policy meeting.

Expectations that Moody's plans to announce its long-anticipated downgrades of 15 global banks at the close also exacerbated losses in the final hour of trading, pushing all three major U.S. equity indices lower by about 2%.

The action in other asset classes was volatile as well with gold losing $50, bond yields flirting with a dip below 1.6%, and oil breaking below $80 a barrel. The dollar rallied by almost 1% as demand for safe-haven assets rose.

Dow Jones Industrial Average plunged 251 points, or 1.96%, to close at 12,573, just above a low of 12,561 on the day.

The S&P 500 lost 30 points, or 2.23%, to finish at 1325.

The Nasdaq was hit the hardest, dropping more than 71 points, or 2.44%, to settle at 2859, snapping a five-day winning streak in dramatic fashion.

Merck ( MRK) was the only Dow component to end the day in the green.

Among the biggest percentage decliners were Alcoa ( AA), Bank of America ( BAC), Cisco ( CSCO), Hewlett-Packard ( HPQ), and Intel ( INTC), all down more than 3%.

Decliners outpaced gainers by a ratio of about 4-to-1 on both the New York Stock Exchange and the Nasdaq.

All ten major sectors on the S&P 500 finished in the red, with the technology, services, energy, capital goods, financials and basic materials sectors experiencing the steepest declines.

The selling pressure picked up after news broke that Goldman Sachs was recommending shorting S&P 500. The firm set a target of 1285 for the index recommended a stop on a close above 1390. It cited increasing signs that the economic recovery is slowing as part of its motivation.

"This morning, the Philly Fed print of -16.6, down sequentially and worse than expected, provides further evidence that weakness has extended into June," the Goldman note said.

"Although yesterday's FOMC delivered easing as expected, with a dovish statement, positive risk sentiment ahead of the FOMC had already buoyed markets," the firm said. "And we now think, with incremental US monetary policy on hold, the market will need to confront a deteriorating growth picture near term."

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