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The Dow settled below the 12000 threshold for the first time since January 31 after unrest in Saudi Arabia and concerns over euro zone sovereign debt spooked the markets.
The Dow Jones Industrial Average was lower by 228 points, or 1.9%, to 11984, the S&P 500 tumbled 25 points, or 1.9%, to 1295 and the Nasdaq Composite dropped 50.7 points, or 1.8%, to 2701. The FOX 50 slid 15.5 points to 921.8.
We’re seeing a “classic flight to safety across the board,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
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Reports that police fired rubber bullets to disperse a protest in oil-giant Saudi Arabia ahead of the "day of rage," planned for Friday, boosted oil prices that had sustained steep losses in earlier trading.
The specter of unrest that has slammed oil-producing Libya spreading to Saudi Arabia is "the worst case scenario for many oil traders," Phil Flynn, senior energy analyst at PFGBEST, told the FOX Business Network. Saudi Arabia houses some 20% of the world's oil reserves, and has the capacity to produce 12 million barrels of oil a day.
Light, sweet crude dipped $1.68, or 1.6%, to $102.70 after tumbling as low as $101.91 in early trading.
Oil prices had been heading lower after markets received a bearish report on U.S. crude inventories Wednesday, saying overall inventories jumped 2.5 million barrels last week and stockpiles at a key domestic shipping point in Cushing, Oklahoma hit record-high levels.
"Domestically we have ample supplies of crude oil," said Darin Newsom, senior commodities analyst at DTN.
Also weighing on markets was Moody's downgrade of Spain's debt one notch to Aa2 from Aa1 amid concerns over the costs the country might incur to restructure its banking sector. The Spanish government estimates that it will cost roughly 20 billion euros to prop up struggling banks, but the ratings agency has pegged the figure between 40 and 50 billion euros. Moody's also warned that further cuts were possible if the situation deteriorates further.
The downgrade raises "concerns about not just Spain, but the European Union," Pado said.
Indeed, several other European Union countries, including Greece and Portugal, have seen their ratings slashed repeatedly on concerns about their ability to pay back government debt. As debt ratings fall, it becomes more expensive for countries to borrow money, making it more difficult to raise money through credit markets.
On the economic front, the number of individuals applying for unemployment benefits jumped from 371000 to 397000 in the previous week -- far higher than the 378000 economists were expecting. The four-week-moving average, which reduces volatility in economic metrics, is at 392250, slightly below the 400000 level economists see as supporting moderate recovery in the labor market.
The U.S. trade deficit widened 15% to $46.34 billion in January. The trade deficit is calculated by subtracting the value of U.S. imports from exports. Exports edged higher by 2.7%, but imports jumped 5.2% -- the fastest growth in 18 years -- as the price of imported oil surged.
A substantial trade deficit poses a problem to the U.S. economy because capital moving abroad supports other countries' growth, and doesn't support domestic economic growth.
The monthly federal budget deficit hit a record-high of $222.5 billion in February, marking the 29th straight month the government spent more money than it collected.
Concerns over several EU members pushed the euro down 0.81% against the U.S. dollar and the greenback tracked 0.61% higher against a basket of world currencies.
Gold tumbled $17.10, or 1.2%, to $1412 a troy ounce. Silver, which closed at a record-high on Wednesday, slipped 98 cents to $35.06 a troy ounce.
HCA Holdings (HCA) jumped 3.5% in its first day of trading despite declines in the broader market. The IPO of the healthcare company is the largest private-equity-backed initial public offering in U.S. history.
Wal-Mart (WMT) plans on opening hundreds of small-format Wal-Mart Express stores in coming years. The company will also roll out a service called "Pick it up Today" that enables customers to order products online and pick them up the same day at a Wal-Mart store.
Cumulus Media Inc. (NASDAQ: CMLS) closed a $2.4 billion deal to acquire Citadel Broadcasting Corporation.
Jackson Hewitt (JTX) shares plunged as much 42% after reporting third-quarter earnings of 19 cents a share -- far shy of analysts' estimates of 31 cents. The company said it is in discussions with lenders about restructuring its debt, and that bankruptcy is a possibility.
Human Genome Sciences (HGSI) and GlaxoSmithKline(GSK) received approval from the Food and Drug Administration for Benlysta, a co-marketed lupus drug. Benlysta is the first new drug to treat the autoimmune disease to be approved in 50 years.
Green Mountain Coffee Roasters (GMCR) has entered into an agreement with Starbucks (SBUX) to manufacture single-serving coffee and tea brewing systems. Shares of Green Mountain shares soared more than 35%.
Global shares tumbled on news of Moody's downgrade of Spain, and China surprisingly reporting a trade deficit in February.
The English FTSE 100 slid 1.6% to 5,845 -- the lowest closing level in 2001. The French CAC 40 was down 0.75% to 3,963 and the German DAX slipped 0.96% to 7,063.
In Asia, the Japanese Nikkei 225 dived 1.5% to 10,434 and the Chinese Hang Seng was lower by 0.82% to 23,614.