NEW YORK U.S. stocks tumbled on Wednesday as fresh signs of deterioration in the housing and employment markets raised more concerns about the economy, driving investors to the safety of U.S. government bonds, pushing prices higher.
The dollar also fell after the weak housing data, with a U.S. index of pending home sales hitting its lowest level since September 2001, when the U.S. economy was in recession.
"The home sales data is a little troubling because this is showing there is more momentum down for the housing market ... raising concerns that the housing slowdown will spill over to consumer lending," said Matthew Moore, economic strategist with Banc of America Securities in New York.
The report, which dates back to July before a credit squeeze sparked by risky U.S. mortgages grew acute in August, may make it more likely that the U.S. Federal Reserve will move cut interest rates.
The Fed is expected to cut rates by 25 basis points from the current 5.25 percent when it meets on September 18, though some analysts say the chances of a 50 basis point cut may rise.
The Dow Jones industrial average .DJI was down 167.37 points, or 1.24 percent, at 13,281.49. The Standard & Poor's 500 Index .SPX was down 18.30 points, or 1.23 percent, at 1,471.12. The Nasdaq Composite Index .IXIC was down 18.96 points, or 0.72 percent, at 2,611.28.
Shares of Citigroup (C.N) fell after The Wall Street Journal said the bank and others could be burdened by affiliated investment vehicles that issued billions in short-term debt. Citigroup shares were down 2.0 percent at $46.28 and were one of the biggest drags on the S&P.
HOME BUILDERS HIT, BONDS BENEFIT
The National Association of Realtor's Pending Home Sales Index, based on contracts signed in July, fell to a reading of 89.9, the lowest reading since September 2001 when the index stood at 89.8.
The fall was much bigger than the 2 percent decline in the index economists were expecting for July and helped paint a bleaker picture of the housing market moving forward.
"This is one of the largest drops in the data series, indicating that things are as bad as people had been fearing," said Ken Landon, global foreign exchange strategist at J.P. Morgan Chase in New York.
Shares of U.S. home builders were walloped after the weak housing report, with the Dow Jones home construction index .DJUSHB down 4.2 percent after being off 1.6 percent ahead of the report.
Stocks had already fallen after the ADP National Employment survey showed private employers added 38,000 jobs last month, well short of the 83,000 economists had forecast.
The dollar was down more than 1 percent to trade at 115.05 yen, well off a session peak of 116.47 yen. The euro was also down 0.8 percent at 156.96 yen.
Meanwhile, U.S. Treasury bonds benefited from the negative news on housing and worries about the economy, sending benchmark yields to five-month lows.
The benchmark 10-year U.S. Treasury note was up 18/32 on the day, yielding 4.4824 percent.
Oil hovered near $75 but remained within sight of an all-time high.
U.S. crude fell 1 cent, or 0.01 percent, to $75.07 per barrel. Gold fell 20 cents, or 0.03 percent, to $681.50.
In Europe, the FTSEurofirst 300 index .FTEU3 was down 0.8 percent while the MSCI main world equity index .MIWD00000PUS was off 0.4 percent.
(Additional reporting by Steven Johnson, Ellis Mnyandu, Joanne Morrison, Nick Olivari, Burton Frierson, John Parry and Jennifer Coogan in New York, and Peg Mackey in London.)