The Dow Jones Industrial Average fell 350 points before sharply paring declines Friday in its most turbulent session of the year.
Major indexes were little changed shortly after the opening bell, then fell sharply before midday, with the losses briefly putting the blue-chip index on pace for one of its biggest daily drops of the year.
The Dow's trading range was around 400 points, the widest since June 24, 2016, the day after the Brexit vote.
As Friday's selling accelerated, investors piled into assets that many consider havens -- sending gold and government bond prices higher.
Several traders said the market's volatility appeared to pick up after ABC News reported that former national security adviser Michael Flynn was prepared to testify that, before taking office, President Donald Trump "directed him to make contact with the Russians."
The Wall Street Journal hasn't independently confirmed the report.
As the report spread over social media, Mohit Bajaj, director of ETF trading solutions at brokerage WallachBeth Capital, said he noticed a pickup in trading volumes, particularly among S&P 500 and Treasurys futures.
"People are just trying to protect themselves right now," Mr. Bajaj said as the stock selling accelerated.
Senate Republicans also have drawn closer to holding a vote on a tax bill that many analysts say could help boost corporate profits and keep the U.S. stock rally going. Reports on Friday that lawmakers had enough votes to pass the tax measure helped spur a recovery in stocks and the dollar following steep losses earlier in the session, some traders said.
The Dow industrials fell 41 points, or 0.2%, to 24232. The S&P 500 declined 0.2%, and the Nasdaq Composite lost 0.4%.
As investors snapped up bonds, the yield on the benchmark 10-year U.S. Treasury note fell to 2.363% from 2.417% Thursday. Bond yields fall as prices rise.
Gold for December delivery rose 0.4% to $1,278.80 an ounce, backing off its session high.
Meanwhile, the WSJ Dollar Index -- a measure of the dollar against a basket of 16 currencies -- also fell and then pared declines.
The rise in political uncertainty "will create volatility for sure," said Brad Bechtel, managing director at Jefferies. "This will add an extra later of tension over the next several weeks."
The day's moves interrupted a rally that had brought major U.S. stock indexes to fresh highs this week.
Recent reports have shown consumer spending, home sales and business investment picking up, encouraging investors who have wondered whether the economy's nine-year expansion could keep going.
Prospects of a tax overhaul also had helped lift bank stocks and put pressure on government bonds through much of the week.
The KBW Nasdaq Bank Index of large U.S. lenders rose 5.8% for the week, notching its biggest weekly advance of the year. Banks are expected to be among the biggest beneficiaries of a corporate tax cut, analysts said, while bond investors say Treasurys could suffer if the Republican tax plan spurs a pickup in inflation.
"We've had one heck of a recovery, global trade being a lot more positive than we initially thought it would be and central banks still remaining pretty accommodative on the whole," said Tom Stringfellow, chief investment officer of Frost Investment Advisors.
The combination of a brightening global outlook and the possibility of lower corporate tax rates has helped provide additional fuel for the U.S. stock rally, Mr. Stringfellow said, even as valuations have risen to levels that some consider stretched.
It also has encouraged investors to scoop up stocks following pullbacks.
"I wouldn't be surprised if we saw a bounce later on," WallachBeth's Mr. Bajaj said as the Dow industrials were trading down around 175 points, noting that investors have often used selloffs as opportunities to pick up stocks at lower prices.
Still, some investors said Friday's developments left them feeling uneasy about the sustainability of the U.S. stock rally.
Christopher Stanton, chief investment officer at Sunrise Capital LLC, said he sold stocks Friday morning after seeing the reports about Mr. Flynn, who pleaded guilty to lying to federal investigators about his communications with Russia and said he was cooperating with the special counsel probe into potential links between the Trump campaign and the Kremlin during the 2016 election.
"Everyone was wondering what will stop this rally," Mr. Stanton said. "Well, this is it."
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(END) Dow Jones Newswires
December 01, 2017 18:25 ET (23:25 GMT)