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Panic sends Dow to worst ever drop

May 06, 2010

Panic selling swept US markets on Thursday as the Dow Jones plunged a record of almost 1,000 points before recouping more than half those losses.

It was unclear whether the sudden sell-off, the Dow's biggest ever intra-day drop, was the result of fears over the Greek debt crisis, a mistaken trade or technical error.

The crash began shortly before 2:25 local time, when in a white-knuckle 20 minutes America's top 30 firms saw their share prices dive 998.5 points, almost nine percent, wiping out billions in market value.

The drop eclipsed even the crashes seen when markets reopened after September 11, 2001 and in the wake of the Lehman Brothers collapse.

The Dow later recovered, closing nearly four percent down, but spooked traders were left wondering whether a technical glitch had caused the blue-chip index to erode three months of solid gains.

Rumors swirled that a Citigroup trader had mistakenly sold 16 billion rather than 16 million stocks in Procter and Gamble shares, forcing the Dow down.

Shares in the consumer goods giant lost more than seven dollars, falling in a similar pattern to the Dow, trading at a low of 55 dollars a share.

"At this point, we have no evidence that Citi was involved in any erroneous transaction," said company spokesman Stephen Cohen.

A spokesperson for the New York Stock Exchange said the cause was still not known.

"We don't know, right now we're looking into it," said Christian Braakman, "it's all speculation."

But after three days in which stocks have suffered triple-digit intra-day losses because of concern about Greece's debt crisis, it was clear that the sell-off was real for some investors.

At the close, the Dow had recovered to 10,520.32, down 347.80 (3.20 percent), while the Nasdaq was down 82.65 points (3.44 percent) at 2,319.64. The Standard & Poors 500 Index was down 37.72 points (3.24 percent) to 1,128.15.

Images of rioting as the Greek parliament passed unpopular austerity measures did little to ease market panic.

The parliament approved billions of euros of spending cuts pledged in exchange for a 110 billion euro (140 billion dollar) EU-IMF bailout just one day after three bank workers died in a firebomb attack during a huge protest.

On Thursday, police charged to scatter hundreds of youths at the tail-end of a new protest outside parliament that drew more than 10,000 people.

In Lisbon, European Central Bank chief Jean-Claude Trichet battled to reassure financial markets that Greece's debt crisis would not end in default, but could not prevent the euro from falling to a 14-month low against the dollar.

Pleas for patience from the White House also had little impact.

The White House said that reforms in Greece were "important" but would take time and that the US Treasury was monitoring the situation.

"The president has heard regularly from his economic team," said White House spokesman Robert Gibbs, adding that President Barack Obama's top economic officials were closely communicating with their European counterparts.

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