NEW YORK (CNNMoney) -- Turmoil returned to the stock markets on Thursday, as renewed concerns about the U.S. and global economies sent major indexes plunging and pushed gold to a new record high.
Investors rushed to move their money into safe U.S. government bonds -- and yields on the benchmark 10-year Treasury fell to a record low below 2%.
Wall Street was walloped by bad news on multiple fronts: Morgan Stanley put out a dismal forecast for global economic growth. A key reading on housing came in worse than expected. And a report showed a significant slowdown in the U.S. manufacturing sector.
"We had a couple days to stabilize and breathe, but you forget that it's a war zone out there and there's just too much uncertainty about the economy," said Frank Davis, director of sales and trading at LEK Securities.
The Dow Jones industrial average (INDU) dropped 420 points, or 3.7%, after falling as much as 528 points. The S&P 500 (SPX) was down 46 points, or 3.8%; and the Nasdaq Composite (COMP) lost 106 points, or 4.3%.
All 30 members of the Dow were in the red, with Bank of America (BAC, Fortune 500) shares plunging 8%. Only four members of the S&P 500 were trading higher.
The gloomy report from Morgan Stanley renewed barely-subsided fears over a slowing global economic recovery. The investment bank slashed its global growth outlook for 2011 and 2012, adding that the United States and Europe are "hovering dangerously close to a recession."
Morgan Stanley cut its GDP forecast to 3.9% in 2011 and 3.8% in 2012, down from 4.2% and 4.5%, respectively. Growth will be particularly sluggish in developed nations, with GDP averaging an increase of 1.5%
"The fact that Morgan Stanley has downgraded its global growth forecast really highlights the concerns and problems facing the global economy," said Michael Hewson, market analyst at CMC Markets in London. "It begs investors to question where future growth will come from."
Trading slows afer week of market mayhem
"I think we're seeing a bit of a delayed reaction to the Sarkozy and Merkel meeting earlier this week, as investors realize that policymakers are out of ideas," Hewson said, noting that an unnamed bank tapped the European Central Bank's emergency liquidity fund for $500 million overnight.
Investors moved into traditional safe havens of U.S.-backed bonds and gold. The price on the 10-year Treasury jumped, pushing the yield to a record low yield of 1.99% from 2.16% late Wednesday.
Gold futures for December delivery rose $31.50 to $1,825.30 an ounce, hitting a new intraday record of $1,829.40 earlier in the session.
U.S. stocks ended mixed Wednesday, as investors weighed the latest corporate results against global economic and debt concerns.
Economy: Morgan Stanley's dire commentary was combined with four disappointing U.S. economic reports.
The Labor Department reported that weekly jobless claims rose by a worse-than-expected 9,000 claims to 408,000 in the week ended Aug. 13. Economists surveyed by Briefing.com had expected jobless claims to rise by 5,000 to 400,000 claims.
The government also reported on Thursday that Americans paid more for consumer goods and services in July, as inflation rose more than expected over the month. The Consumer Price Index, rose 0.5% in the month -- led by a 4.7% increase in gas prices from month to month.
Economists expected a 0.2% rise in July, according to a survey from Briefing.com.
After the open, investors got two ugly reports on existing home sales and manufacturing activity.
The Philadelphia Federal Reserve's regional index plunged to a reading of minus 30.7 in July, showing severe contraction in economic activity last month. The number was far worse than expected, with economists expecting a reading of plus 0.5.
It was the worst reading on that indicator since March 2009, when the U.S. economy was still in recession.
"The Philly Fed data was the punch in the stomach that bent this market over," Davis said.
The National Association of Realtors said existing home sales dropped by 3.5% in July, far worse than the 2% rise that the market was looking for.
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World markets: European stocks plunged sharply. Britain's FTSE (FTSE) 100 fell 4.9%, the DAX (DAX) in Germany sank 6.5% and France's CAC (CAC) 40 tumbled 5.3%.
Asian markets ended in the red. The Shanghai Composite fell 1.6%, the Hang Seng in Hong Kong dropped 1.3% and Japan's Nikkei shed 1.3%.
Companies: Dow component Hewlett Packard (HPQ, Fortune 500) reports its quarterly results after the closing bell on Thursday. Analysts are looking for the computer maker to post a profit of $1.09 per share.
Shares of McGraw Hill Publishers (MHP, Fortune 500) dropped by 6% on Thursday after the Justice Department said it was investigating rating agency McGraw subsidiaryStandard & Poor's for allegedly overrating mortgage-backed securities. The mortgage securities meltdown led to the 2008 financial crisis, according to a report published Thursday.
The stock price for Sears Holdings (SHLD, Fortune 500) fell more than 6% after the retailer reported a disappointing quarterly loss of $1.13 per share.
Currencies and commodities: The greenback gained strength against the euro, Japanese yen and the British pound.
Oil for September delivery fell $3.90, or 4.5%,to $83.67 a barrel. http://www.cnnmoney.com