Stocks fall after bad news about European budgets, U.S. unemployment

The Dow Jones industrial average is closing in on 10,000 -- from the wrong direction.

Stock markets around the world plunged Thursday on concerns about the mounting debt problems of several European governments as well as an unexpected rise in U.S. jobless claims.

The Dow tumbled nearly 270 points -- coming within three points of closing below the 10,000-point mark.

In the final minutes of trading, the blue-chip gauge was briefly below 10,000, falling as low as 9,998.71. It ended the day down 268.37 points, or 2.6%, to 10,002.18 -- its lowest close since Nov. 4. Broader indexes fell more sharply.

The Dow is down 6.7% since hitting a 15-month high less than three weeks ago.

Major European markets lost more than 2% Thursday, with shares in Spain sinking nearly 6% as investors worried that the growing government debt woes that have hammered Greece were spreading to Spain, Portugal and other nations, as their budget deficits soar.

Key stock indexes plunged 5.9% in Spain, 4.9% in Portugal and 3.5% in Italy.

Wall Street also was spooked by a Labor Department report showing that first-time claims for unemployment benefits rose to 480,000 last week, exceeding the 455,000 that economists expected. The figure seemed to dash hope that the January unemployment report to be released Friday would point to a significantly improving job picture.

Because brutal job market conditions pose the greatest impediment to sustained U.S. economic growth, the report also bolstered concerns about the strength of the recovery as the ability of governments around the world to speed growth appears to be hamstrung by political and financial constraints.

In the U.S., the public has grown increasingly wary of additional stimulus programs that would widen the budget deficit, said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, N.Y.

“The economy is showing renewed weakness at a time when nobody has a strong stomach for more stimulus,” Johnson said. “I think it’s just a correction in a bull market, but it’s driven by some genuinely well-founded concerns.”

The Standard & Poor’s 500 dropped 34.17 points, or 3.1%, to 1,063.11. The Nasdaq composite index gave up 65.48 points, or 3%, falling to 2,125.43.

Just 273 stocks on the New York Stock Exchange rose for the day, the smallest number since March 5, 2009 -- when the market was nearing a 12-year low.

The S&P 500 and Nasdaq now are down 7.6% and 8.4%, respectively, from their Jan. 19 highs, putting them within reach of a 10% decline that is the traditional definition of a stock-market correction.

Spanish stocks led European markets to their worst drubbing in more than two months after a disappointing government bond sale raised the prospect that countries would have to pay higher interest rates to finance their deficits, limiting their ability to stimulate lackluster economies.

In Greece, for example, investors have demanded increasingly higher yields on government debt recently.

“The reality is that countries with budgets that are out of control or seriously compromised need to do much more efforts to fix their budgets, which means taking actions that will exacerbate the recessions going on all around Europe,” said Adolfo Laurenti, an economist at Mesirow Financial in Chicago.

Prices of oil, gold and other commodities slumped as investors fled to what they perceived to be safer havens, including the dollar and Treasury securities.

Near-term gold futures tumbled $49, or 4.4%, to $1,062.40 an ounce. Oil futures dropped $3.84, or 5%, to $73.14 a barrel.

The euro fell more than 1% to $1.374, its lowest mark since June, from $1.391 on Wednesday.

An index of the dollar’s value against a basket of six major currencies rose 0.8% to its highest level since July.

walter.hamilton@latimes.com