Wall St slumps again as investors shun risk

NEW YORK, (Reuters) – U.S. stocks tumbled more than  4 percent yesterday, almost wiping out gains from a relief  rally the previous day, as rumors about the health of French  banks sparked concern that the euro zone’s debt crisis could  claim new victims.

The rumors tapped into investors’ worst fears of contagion.  French bank stocks tumbled and led European markets lower.  Safe-haven gold hit another record and investors pushed into  U.S. Treasuries, while oil prices also rose.

“What we’re seeing here is the fear and rumor-mongering  that’s coming out of Europe. It eerily reminds me of the fall  of 2008, where you would see one financial institution after  another be lined up in the cross-hairs of the traders,” said  Cliff Draughn, chief investment officer at Excelsia Investment  Advisors in Savannah, Georgia.

Shares of Societe Generale plummeted as much as 23 percent  before trimming some losses to close almost 15 percent lower.

Societe Generale denied market rumors about the bank. It  also asked France’s stock market regulator to open an  investigation.

The intensification of worries over the reach of the euro  zone debt crisis took some of the comfort out of Tuesday’s  promise from the U.S. Federal Reserve to keep interest rates  low for at least another two years.

The Dow Jones industrial average ended down 519.83 points,  or 4.62 percent, at 10,719.94. The Standard & Poor’s 500 Index  lost 51.77 points, or 4.42 percent, at 1,120.76. The Nasdaq  Composite Index fell 101.47 points, or 4.09 percent, at  2,381.05.

Trading was once again marked by sharp moves on massive  volume. For a fifth straight day, the Dow industrials traded in  a range of more than 400 points.

The S&P 500 is down more than 15 percent from its 2011  closing high set on April 29.

The losses came against the backdrop of worries about weak  U.S. economic data, the loss of the United States’ AAA credit  rating and the inability of lawmakers to address growing  worries that another recession is on the way.

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