US Markets

Investors staged a global flight from risk Thursday that sent the Dow Jones Industrial Average to its worst two-day point drop since November 2008, after a gloomy outlook by the Federal Reserve renewed fears of an economic slowdown. The Dow Jones Industrial Average fell 391.01 points, or 3.5%, to 10733.83, for a two-day loss of 5.92%. Investors barrelled out of stocks and into safe assets such as the U.S. dollar, which surged, and 10-year Treasury bonds, whose yields plummeted to 1940s levels.

Thursday's action, the worst selloff in stocks since Aug. 18, built on the market's decline Wednesday, when the Fed acknowledged significant downside risks to the economy and noted "strains" in global financial markets, a reference to debt-strapped Europe. The Standard & Poor's 500-stock index shed 37.20 points, or 3.2%, to 1129.56, its fifth largest drop this year. The technology-oriented Nasdaq Composite slumped 82.52 points, or 3.3%, to 2455.67, also the fifth largest decline this year. Among NYSE-listed issues, decliners outnumbered gainers by just over 7 to 1, while the Nasdaq losers outpaced gainers by about 6 to 1.

A weak reading on manufacturing in China contributed to Thursday's grim mood. A lack of appreciable progress in containing Europe's debt crisis, which has weighed on markets for months, also added to the negativity. All blue-chip stocks finished in the red, as did all S&P 500 sectors. Materials and energy stocks were hit hardest, falling as investors acted on their economic slowdown worries and in reaction to the fast rise of the U.S. dollar.

European Markets

European stock markets ended sharply lower Thursday, with banking, mining and oil stocks hit hard amid investor disappointment over the Federal Reserve's bond-swap program and as economic data indicated the euro zone's private sector ground to a standstill in September. Wall Street fell hard in a global rout, cementing losses for Europe that deepened as the day wore on. The Stoxx Europe 600 index dropped 4.6% to close at 214.89.

The preliminary euro-zone composite purchasing managers' index dropped to 49.2 in September, pointing to the first decline in private-sector activity across the euro area in more than two years. Adding to pressure on Europe, credit-rating firm Standard & Poor's late Wednesday cut its long-term ratings on several Italian lenders. UniCredit SpA shares dropped 6.3% and Italy's FTSE MIB index plunged 4.5%. French banks suffered some of the biggest losses among banking stocks, with Societe Generale SA sinking 9.6% and BNP Paribas SA trading down 5.7%. The French CAC 40 index shed 5.3% to close at 2,781.68. BNP Paribas dismissed as pure fantasy a Financial Times report Thursday that senior executives are pushing French regulators to conduct emergency stress tests to find weaknesses in the nation's banking system.

Resource stocks sagged amid plunging commodity prices. French oil major Total SA fell 5.7%, while in London, BP PLC gave up 5% and Royal Dutch Shell PLC tumbled 3.4%, as crude-oil futures sank. London's FTSE 100 index dropped 4.7% to settle at 5,041.61. Heavyweight mining stocks also dropped, with Antofagasta PLC down nearly 13%, Rio Tinto PLC falling nearly 11% and BHP Billiton PLC off more than 8%. The German DAX 30 fell 5% to close at 5,164.21, led by a 7.5% tumble for Daimler AG, a 4.5% fall for chemical group BASF SE and a 4.2% loss for conglomerate Siemens AG.

Asian Markets

Asian shares ended sharply lower Thursday after the U.S. Federal Reserve's gloomy view on the economic outlook and China data disappointed investors. In a widely expected move Wednesday, the Fed said it will increase its share of longer-term Treasurys by $400 billion by June 2012 by selling shorter-dated holdings, a program dubbed Operation Twist.

Japan's Nikkei Stock Average ended down 2.1% at 8560.26, South Korea's Kospi was down 2.9% at 1800.55, Hong Kong's Hang Seng Index dropped 4.9% to 17911.95, and the Shanghai Composite Index fell 2.8% to 2443.06. Indonesian shares racked up the worst losses, with the main index plunging 8.9% to 3369.14, its lowest level since February, as offshore funds sold on worries a drop in the rupiah would spur inflation and hurt growth.

Adding to the bearish mood, a preliminary gauge of China's manufacturing activity contracted in September, reigniting fears the world's second largest economy may face a sharp slowdown, and further sap global consumption demand. The preliminary HSBC China Manufacturing Purchasing Managers Index fell to 49.4 in September from a final reading of 49.9 in August. Among resources plays, Aluminum Corp. of China dropped 9.4% in Hong Kong, while its Shanghai-listed shares shed 3.4%. Kobe Steel dropped 4.3% in Tokyo and S-Oil tumbled 7.4% in Seoul.

The financial sector also posted sharp losses, with Hana Financial down 5.1% in Seoul, HSBC off 3.6% in Hong Kong and Mizuho Financial falling 1.8% in Tokyo. In Tokyo, Softbank tumbled 12.3% on a Nikkei report its exclusive grip on iPhone products in Japan has been broken, with KDDI snagging the right to sell Apple's upcoming iPhone5 there. KDDI gave up early gains to end down 0.8%.

Commodities

Copper closed a massive 7.5% lower on the London Metal Exchange Thursday after a widespread liquidation of risk assets by investors sent the industry bellwether tumbling into a so-called bear market. The red metal, which is widely used in manufacturing and construction, and is consequently sensitive to economic developments, closed the session at just $7,673 a metric ton. It was down more than $626 on the previous session's close. Copper's value was also down more than 20% compared with where it stood two months ago, signaling entry into a bear market phase, technical analysts said. The market's intraday low of $7,635.75/ton was also the lowest recorded since Sept. 16, 2010.

Three-month tin slid below $20,000/ton for the first time since August 2010, and suffered the largest losses of any of the base metals during the session. It closed at $19,825/ton, down $1,820, or 8.4%, on Wednesday's. Oil prices tumbled hard Thursday as traders rushed out of risk-based assets after the Federal Reserve's stimulus effort and its dour economic outlook left them cold. Light, sweet crude for November delivery on the New York Mercantile Exchange was down as much as $6.26, or 7.2%, at its lowest point of the day, dipping below the psychologically important $80-a-barrel level several times during the afternoon. The price settled down $5.41, or 6.3%, at $80.51 a barrel.

Brent crude for November delivery on the ICE Futures Europe exchange settled down $4.87, or 4.4%, at $105.49 a barrel. Precious metals dived across the board as investors moved to raise cash to cover steep losses in other markets, as equities and commodities slid on worries that the Federal Reserve's latest moves to stimulate a U.S. economy wouldn't be enough to stave off a global slowdown. December delivery gold fell $66.40, or 3.7%, to $1,741.70 an ounce, a six-week low; silver for December delivery fell 9.6%, or $3.891, to $36.578 an troy ounce, a 10-week low.