Dow Falls 520 Points on European Debt Worries

VIDEO: U.S. stocks plunge more than 500-points on worries French banks could
WATCH French Banks New Economy Headache

The Dow Jones industrial average dropped 520 points today. U.S. stocks skidded on new worries about government debt in Europe, losing all of Tuesday's rally. Gold surged to yet another new high.

The Dow had fallen more than 400 points in early trading. By the time the market closed, the S&P 500 was down 51 points, or 4.4 percent, while the Nasdaq fell 101 points, or 4 percent, to 2,381. But Treasury issues are rising, and the price of gold surpassed $1,800 an ounce for the first time as investors pulled their money out of stocks and snapped up precious metals.

The shares of Bank of America Corp., Citigroup, Goldman Sachs and Morgan Stanley all skidded today.

BofA -- the biggest U.S. bank -- was off 10.9 percent and Citi was down 10.5 percent.

Goldman was off 10 percent, while Morgan Stanley shed 9.6 percent of its value. Even JP Morgan, considered one of the most solid large institutions, lost 5.5 percent of its value despite CEO Jamie Dimon's saying on CNBC that his company is not worried about its European exposure.

This was the third consecutive trading day of 400+ points moves in the Dow. The last time this happened was Nov. 21, 2008.

Today was also the Dow's lowest close since Sept. 23, 2010.The recent market rout has wiped out more than $2 trillion in investor wealth in the United States.

"It's not a full-blown panic yet, but it could get there," said Art Cashin, a veteran trader at UBS. "They're not throwing things out the window quite yet, but they're not far from it if this keeps up."

France's debt was the worry of the day, with the cost to insure French bonds surging, an indication that investors believe the country might have trouble repaying its sovereign debt. The shares of Paris-based lender Societe Generale SA declined as much as 23 percent on speculation about its finances, which bank officials denied.

French President Nicolas Sarkozy cut short his vacation on the French Riviera, summoning key government ministers for an emergency meeting on the financial crisis. "Commitments to reducing the deficit are inviolable and will be maintained," Sarkozy said.

France still has a AAA credit rating, but there is worry that its rising deficit and bailouts of other Eurozone nations will weaken the country's ability to repay.

In the United States, on Tuesday the Dow rose 430 points, or 4 percent, to 11,239 at the 4 p.m. close in a wild session of swinging prices.

Markets were still reacting to the Federal Reserve statement about the weakening economy and the news that it would be keeping a key Federal interest rate low because economic growth this year had been "considerably slower than the Committee had expected."


That move confirmed what most Americans are feeling -- things simply aren't getting better when it comes to the overall economy. And it's historic. Never before has the Fed given a specific timeframe for keeping rates low, in the past favoring the vague "extended period" that the markets interpreted as meaning a couple more months.

Bernanke and Co. downgraded their assessment of the economy, noting the increasingly dire jobs situation, slowing consumer spending and the sagging housing market.

"The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate," says the post-meeting statement. "Moreover, downside risks to the economic outlook have increased."

While they put a two-year time horizon on the 0-0.25 percent interest rates, they did not announce an expansion of their quantitative easing programs, which were meant to stimulate the economy even further. They suggested they'd keep the $2 trillion currently deployed in the programs "reinvested" instead of allowing them to slowly expire over time as the investments got paid back. The program might be expanded if the economy warrants it.

Three members -- regional Fed presidents serving as voting members for a limited term -- dissented, saying they'd like to have maintained the "extended period" language.

ABC News' Dan Arnall and The Associated Press and contributed to this report