New signs of a slowdown send stocks tumbling

Stocks tumbled on a fresh batch of troubling economic data and mounting fears over Europe’s debt crisis.

The Dow Jones industrial average fell 178 points Wednesday to a 12-week low. The slide erased Tuesday’s 123-point gain.

Traders also bailed out of many commodities. Crude oil futures sank below $95 a barrel for the first time since February.

Some investors rushed back to U.S. Treasury bonds, pushing their yields down. The 10-year T-note’s yield fell to 2.97% from 3.1% on Tuesday.


Stocks also fell sharply in Europe, and the euro plunged 2% to a three-week low against the dollar, as euro-zone finance ministers failed to agree on whether to make private bondholders bear some of the cost of another aid package for debt-burdened Greece.

The European Central Bank warned of a potential “contagion” effect across the continent if Greece defaults on its debts — something that seems certain if the Athens government doesn’t get more help from its neighbors. Meanwhile, tens of thousands of Greeks massed in the country’s capital to protest the austerity measures proposed by the government.

Yields on Greek government bonds climbed from already-astronomical levels. Two-year Greek bonds surged to a record 28% from 26.4% on Tuesday.

Wall Street had to contend as well with another round of downbeat reports on the U.S. economy. A Federal Reserve index of manufacturing activity in the New York region fell last month, reaching a level signaling contraction in the sector for the first time since November.

The Fed also reported that industrial output nationwide edged up 0.1% in May, less than the 0.2% gain expected on average by economists. Depressed auto output, a result of parts shortages tied to Japan’s earthquake in March, continued to weigh on overall production.

Wednesday’s reports added to a string of data pointing to a slowdown in economic growth, indicators that have pulled major U.S. stock indexes down more than 7% from their late-April highs.

The market’s continuing slide appears to be taking a toll on investor confidence. U.S. stock mutual funds suffered a net outflow of nearly $5.5 billion in the seven days ended June 8, the biggest net outflow since the last week of August, the Investment Company Institute said Wednesday. An outflow figure shows how much withdrawals by fund investors exceed new purchases of fund shares.

Domestic funds saw net redemptions through May as the market edged lower, but the outflows were relatively modest, averaging $2 billion a week. The floodgates opened last week as the Dow headed for its sixth straight weekly loss.


The outflows are small compared with the total of $4.2 trillion of assets held in U.S.-based stock funds. But redemptions can pose trouble for fund managers by forcing them to sell shares to pay departing investors, or by limiting their ability to buy stocks they believe are bargains.