Dow Suddenly Drops 1,000 Points on Worries Over Greek Debt, Then Recovers

Sources say possible trading error at Citigroup to blame.

May 06, 2010, 3:13 PM

May 6, 2010 — -- Stocks took a sudden, breathtaking plunge today, with the Dow Jones industrial average suddenly falling nearly 1,000 points at one point this afternoon -- before rebounding just as quickly. It closed down some 348 points, at 10,520.32.

Sources said this afternoon that a trading error at Citigroup may have led to the abrupt drop. The possibility was first reported by CNBC.

The sources told ABC News that the possible error by Citi involved what was supposed to be a $16 million trade on an S&P 500 futures-linked contract. The trade was entered in billions instead, they said.

The trade is believed to have sparked a massive sell-off in shares of Procter & Gamble, because P&G is one of the single largest components of the S&P 500 average. The sell-off was enough briefly to trigger an automatic halt to trading in Procter & Gamble stock.

The brief plunge -- more than 990 points at its low point -- was the biggest intraday point drop in the history of the Dow Jones industrial average. The major averages all closed down more than 3 percent.

Citigroup said that it was investigating the market drop but did not confirm reports of a trading error.

"We, along with the rest of the financial industry, are investigating to find the source of today's market volatility. At this point, we have no evidence that Citi was involved in any erroneous transaction," the bank said in a statement.

Procter & Gamble stock opened today at 62.68, and stayed in a narrow range until 2:28 p.m., when it suddenly plunged to 53.99 in just four minutes. By 2:54 p.m., it was back up to 61.84. It closed at 60.75.

Procter & Gamble managers said they did not know what had gone wrong.

"The stock outperformed the broader market today," the company said in a statement. "We aren't in a position to comment on the details of an individual trade today but we believe the trade was an error."

Numerous other stocks went on even more extreme swings during the afternoon plunge. Accenture, the large management consulting firm, started the day at 42.17 per share -- then dropped to 0.01, just one penny per share, before recovering. It ended the day at 41.09, down 3 percent.

Ted Weisberg, the president of Seaport Securities, said that if a "fat finger error" -- trader slang for pushing the wrong button during a trade -- did occur, it could have had a quick and widespread effect across the stock market because of the speed of today's trades, most of which take place electronically.

"People need to be reminded though that 70 percent of average daily volume is driven by high frequency trading," he said.

Late today, regulators from the Securities and Exchange Commission and the Commodities Futures Trading Commission said they would try to figure out why the market gyrated so wildly.

"The SEC and CFTC are working closely with the other financial regulators, as well as the exchanges, to review the unusual trading activity that took place briefly this afternoon," they said in a statement. "We are also working with the exchanges to take appropriate steps to protect investors pursuant to market rules.

"We will make public the findings of our review along with recommendations for appropriate action."

"It was horrific timing to have it both happen at the same time," said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., "because investors ... were already skittish about what they're seeing in Greece."

Doug Roberts, the chief investment strategist of in Shrewsbury, N.J., said that glitch or not, investors may have been looking for an excuse to get some of their money out of the market.

The Dow has been dropping since Monday as investors continue to worry that European efforts to prop up Greece's failing economy won't be enough and that the country's woes will reverberate around the globe.

"In a nutshell, Greece is spooking investors about all of Europe and the consequences of that for the U.S. recovery," said University of Maryland Professor of Business Peter Morici.

Stock Market Today: Dow Plunges 1,000 in Minutes, Recovers

Art Hogan, chief investment strategist at Jefferies & Co., criticized Europe's handling of the Greek debt crisis so far.

"This is the cost of European reaction," Hogan said. "They have dragged their feet."

He added he was also shaken by the mid-afternoon plunge: "That was probably the most disturbing trading activity anyone is ever going to see in our lifetime."

The European Central Bank, he said, hasn't been aggressive enough or moved fast enough in adjusting its monetary policy to combat Europe's economic woes.

Greece is not alone; Portugal, Italy, Ireland and Spain have all faced major debt problems that have rattled financial markets. As a group, the countries are commonly referred to as "PIIGS."

The euro sank to a 14-month low below $1.27 today. Gold, often considered a safe haven in rough markets, briefly rose to more than $1,209 per ounce.

Greece's finance minister said Thursday that a joint aid package from the European Union and the International Monetary Fund was the country's only hope of avoiding bankruptcy.

For now, the country has imposed austerity measures, such as cutting salaries and pensions and raising taxes to qualify for the pacakge. The public reaction to the cuts, however, has been one of outrage and violence, with three people dying during riots in Athens on Wednesday.

With reports from ABC News' Zunaira Zaki, Daniel Arnall and the Associated Press.

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