Financial shares drove the stock market lower Thursday as President Barack Obama proposed rules that would limit the types of trading banks can do with their money.
The Dow Jones industrial average tumbled 210 points after dropping 122 on Wednesday. The index has seen four straight triple-digit swings and the latest slide erased the Dow's gains for 2010. Bond prices rose as the stock market became more volatile.
Tightening the rules on risk-taking and trading at banks could hurt profits at those companies. Obama said he would seek to limit the size and complexity of large financial companies so that a bank's collapse wouldn't endanger the overall financial system.
The move could mean sweeping changes for how big financial institutions like Bank of America and JPMorgan Chase & Co. are structured. Bank of America shares fell 7 percent, while JPMorgan lost 6 percent.
Weakness in manufacturing also brought concern that the economy might not be recovering as quickly as hoped. The Philadelphia Federal Reserve said manufacturing in its region fell in January from December. Its index of regional manufacturing conditions fell to 15.2 from a revised 22.5 last month.
Patrick Galley, chief investment officer at RiverNorth Capital in Chicago, said stocks have risen so fast in the past 10 months that expectations about an economic recovery are getting too high.
"The market can be quite fickle just because of the huge run-up that we've had," he said. "A lot of folks have their trigger finger on the sell button if they start to sense that news won't meet expectations."
In early afternoon trading, the Dow fell 210.93, or 2 percent, to 10,392.22. The index hasn't swung by more than 100 points in four straight trading days since May 6-11.
The broader Standard & Poor's 500 index fell 21.64, or 1.9 percent, to 1,116.40. The Nasdaq composite index fell 28.54, or 1.3 percent, to 2,262.71.
Stocks dropped Wednesday after China said it would curb bank lending to slow its economy. The latest sign of China's supercharged growth came on Thursday as the country reported 10.7 percent economic expansion in the fourth quarter and 8.7 percent for all of last year. The numbers reinforced concerns that China will take more steps to tighten monetary policy and rein in its economy, which could hamper a global economic rebound.
The questions about how profits will hold up at banks drove up expectations that trading will become more volatile. The Chicago Board Options Exchange's Volatility Index jumped 17 percent. A rise in the VIX, which is known as the market's fear index, signals that investors expect bigger swings in stocks.
Shares of Bank of America fell $1.27, or 7.7 percent, to $15.22, while JPMorgan fell $2.72, or 6.3 percent, to $40.68.
Concern about the U.S. economy grew Thursday after an unexpected jump in unemployment claims. The Labor Department said workers filing for unemployment benefits for the first time rose by 36,000 to 482,000 last week. Economists polled by Thomson Reuters were expecting a small drop. The four-week average rose for the first time since August.
The report provided a grim reminder that while the economy might be improving, a robust recovery is unlikely until companies start adding jobs. The unemployment rate remained at 10 percent last month.
The focus on banks overshadowed improved profit reports at Xerox Corp., UnitedHealth Group Inc., and Southwest Airlines Co.
Credit card lenders Capital One Financial Corp. and American Express Co. as well as Internet search company Google Inc. are scheduled to report quarterly results Thursday.
Bond prices rose as the stock market fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.61 percent from 3.65 percent late Wednesday.
The dollar rose against other major currencies, while gold fell. A rise in the dollar hurt commodity prices, which become more expensive for foreign buyers when the dollar strengthens.
Crude oil fell $1.33 to $76.41 per barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies fell 10.93, or 1.7 percent, to 628.68.
Four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 755.9 million shares compared with 563.2 million shares traded at the same point Wednesday.
Britain's FTSE 100 fell 1.6 percent, Germany's DAX index lost 1.8 percent, and France's CAC-40 fell 1.7 percent. Japan's Nikkei stock average rose 1.2 percent.
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