Wall St falls 3% on Europe debt worries, US jobless claims

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It was a brutal sell-off on Wall Street. The Dow fell below 10,000 for the first time since last November and the S&P 500 slipped towards the 1050 mark amid worries about the job market and Europe's ability to get a grip on its debt.

Financials were a big drag with Bank of America, JP Morgan, Citi and Goldman Sachs, all down 4% to 5%.

Volume was heavy, with 11.21 billion shares traded. Decliners outpaced the advancers, roughly in a 14 to 1 ratio.

The CBOE volatility index spiked more than 20%, ending above 26.

By the end of day's trade, the Dow Jones Industrial Average barely managed to regain a few points to end at 10,002.18, closing 268.37 points or 2.61% lower. With yesterday's decline, the Dow is now down more than 4% for the year.

The S&P 500 Index shed 3.11% or 34.17 points to close at 1,063.11 and the Nasdaq dropped 3% or 65.48 points to 2,125.43.

Driving most of the losses in the US markets, initial jobless claims rose by 8,000 last week to a seasonally adjusted 480,000. This is against economists' expectation of a drop of 10,000.

Arjuna Mahendran, MD of Head Invst Startegy Asia at HSBC Private Bank said, "The outlook for the global economy I think really is not that dire so I am not overtly concerned. This is a very good correction that we are going through which was overdue. We have good Nine to Ten months of extremely spectacular performance by all risk asset classes. So some form of correction was due. The exuberance had to sort of subside at some point. And that is happening now. I consider this as a great buying opportunity; you are getting real value out there. And this is why I think 2010 is going to be a sort of value audacity really we are going to find all sorts of opportunities being flung at us."

European markets also fell sharply during the day yesterday on credit default concerns in Greece, Portugal & Spain. These markets fell 2.2-2.8%.

Infact, Greece and Potugal's 5-year sovereign credit default swap spreads were up 17 bps and 13 bps respectively. While Spain's sovereign credit default swap spreads were up 12 bps.

In currency markets, the dollar shot to a 7-month high versus the euro on concerns over the fiscal health of debt-laden countries such as Greece, Portugal and Spain. The euro was also under pressure after European Central Bank President Jean-Claude Trichet said that many members in the euro zone will have large, sharply rising fiscal imbalances.

The dollar index is currently hovering around the 80 mark.

In the commodity space, copper prices plunged to their lowest levels in more than three months. Aluminium and zinc too continued to shed weight.

Crude prices plunged 5%, in their steepest drop since July. The commodity is currently trading below the USD 73 a barrel.