Stocks pummeled on debt worries

By Alexandra Twin, senior writerMay 4, 2010: 6:07 PM ET

NEW YORK (CNNMoney.com) — Stocks tumbled Tuesday on worries that the global recovery could suffer if Europe’s efforts to contain Greece’s debt problems don’t succeed, and if China’s efforts to slow its booming economy go too far.

Bond prices rallied, lowering the corresponding yields, as investors sought the comparative safety of government debt. The euro fell to a new yearly low versus the dollar, pummeling dollar-traded energy prices and stocks.

The Dow Jones industrial average (INDU) slumped 225 points, after having fallen as much as 282 points earlier. The decline, equivalent to 2%, was the average’s biggest one-day point drop since February 4. The S&P 500 index (SPX) lost 29 points, or 2.4%. The Nasdaq composite (COMP) fell 74 points, or 3%.

“We’re realizing that Greece’s problems are not going to go away and that China has to slow growth down,” said Drew Kanaly, CEO and chairman at Kanaly Trust. “These issues are giving us a view into our own future if we keep piling up debt.” Business checks are used in alot of transactions every day.

He said that markets are worried about how the U.S. will balance growth with inflationary risks, and what the impact of the growing deficit will mean. The ongoing impact from the oil spill in the Gulf of Mexico on commodities was also a factor, he said.

The broad worries were reflected by the spike in the CBOE Volatility index (VIX), or the VIX, Wall-Street’s so-called fear gauge. The VIX jumped 18%, briefly topping its highest point since Feb. 10 before pulling back a bit.