NEW YORK -- Fear is creeping back into the stock market.
This week's sell-off in stocks accelerated Thursday, with major market indicators sliding more than 1.5 percent, cutting nearly 130 points off the Dow Jones industrial average.
Another bad signal from the job market and concern over a possible downgrade of British government debt added to worries that the market may have moved too high, too quickly over the past two and a half months. Hopeful signs of recovery led investors to push the Standard & Poor's 500 index up more than 30 percent from 12-year lows in early March.
"People are nervous after what they've just been through," said Ron Weiner, president and chief executive of RDM Financial in Westport, Conn. "A pullback of 7 to 10 percent is absolutely appropriate, but if it goes further than that, that suggests the market is more skittish than people think."
Indicators of investor anxiety spiked. Wall Street's "fear index" or VIX, a gauge of stock market volatility, jumped more than 8 percent. The VIX had been easing steadily since early March, and investors were encouraged earlier this week when it fell below 30 for the first time since September. On Thursday it rose back above that level, closing at 31.35.
Meanwhile, gold prices hit a 2-month high as the selling on Wall Street led investors to seek safety. Bond prices slumped after the Treasury announced another round of debt auctions next week, which will increase the supply of bonds in the market, and over worries that S&P's warning on British government debt might augur trouble for other countries.
The market pulled off its lows following a late-day surge of 15 percent in General Motors Corp. GM had announced earlier in the day a key agreement with the United Auto Workers on concessions that could help the struggling automaker restructure outside of bankruptcy court.
The Dow fell 129.91, or 1.5 percent, to 8,292.13, after earlier falling as much as 201 points. The Standard & Poor's 500 index fell 15.14, or 1.7 percent, to 888.33, and the Nasdaq composite index fell 32.59, or 1.9 percent, to 1,695.25.
Standard & Poor's rattled investors when it said Britain may have its rating cut because of rising debt levels. That would raise the cost of borrowing for the British government, which is taking a big role in bailing out that country's stricken banking system, and could mean similar warnings for other countries including the United States.
"It raises questions about our own situation in terms of our deficits and our national debt," said Alan Skrainka, chief market strategist at Edward Jones, of the S&P report. "There are limits to how high you can take these numbers longer term."
Even with governments pumping huge amounts of money into economies around the world there are questions about how soon a rebound might take hold. In the U.S., home prices are still sliding and unemployment remains at a 25-year high. The Labor Department reported Thursday that continuing claims for unemployment benefits set their 16th straight weekly record.
Stocks wavered this week amid disappointing data on housing starts and a downbeat economic outlook from the Federal Reserve. On Wednesday, stocks gave up early gains and ended lower after the Fed said the economy was likely to shrink by more than forecast this year and that unemployment could rise as high as 9.6 percent, also worse than previously expected.
Gains in large bank stocks helped curb the market's overall losses after Goldman Sachs raised its rating on large banks to "neutral." JPMorgan Chase & Co. added 35 cents to $34.90 and Wells Fargo & Co. rose 58 cents, or 2.4 percent, to $25.04.
Regional bank stocks suffered, however, and Regions Financial Corp. tumbled 79 cents, or 16.2 percent, to $4.10 after it priced a public stock offering at a big discount.
Fifth Third Bancorp fell 76 cents, or 9.9 percent, to $6.95, while Huntington Bancshares Inc. lost 52 cents, or 10.8 percent, to $4.30. Both banks also announced plans to boost their capital through public stock offerings.
In other trading, the Russell 2000 index of smaller companies fell 12.83, or 2.6 percent, to 476.52.
About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.44 billion shares.
Treasury prices fell on worries that the S&P's warning on British government debt might herald trouble for the U.S. government, which is issuing historic amounts of debt to fund its financial rescue and economic stimulus programs.
The price of the 10-year Treasury note fell 13/32, pushing its yield up to 3.37 percent from 3.19 percent late Wednesday. The dollar was mostly lower against other major currencies.
Oil fell 99 cents to $61.05 a barrel after rising sharply earlier in the week. Investors worried that continued sluggishness in the economy would reduce demand.
Overseas, Japan's Nikkei stock average rose 0.2 percent. In Europe, stocks fell after the S&P warning about Britain's debt. The FTSE 100 in London tumbled 2.8 percent. Germany's DAX index fell 2.7 percent, and France's CAC-40 lost 2.6 percent.
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