NEW YORK (Reuters) - Wall Street suffered its worst day since August on Tuesday as investors dumped stocks on turmoil in oil exporter Libya, in what could be the start of a long-anticipated pullback after a lengthy rally.
Rising volatility and heavy volume added heft to the possibility of a larger pullback. With 9.76 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, it was the highest volume session for the month and the second-highest for the year.
The CBOE Volatility Index, Wall Street’s so-called fear gauge, surged 26.6 percent to end at 20.80, its highest one-day jump since May 20, 2010.
“We’ve got some smoldering fires and it’s an excuse for the market to sell off,” said Stephen Massocca, managing director of Wedbush Morgan in San Francisco.
The benchmark Standard & Poor’s 500 lost 2.05 percent, its worst one-day percentage drop since August 11.
“How significant a sell-off we get, the next 24 to 48 hours is going to be important. If we can hold this 1,315 on the S&P and hold the trendline, than we can probably get through this. But any more weakness and there will probably be a cavalcade.”
Oil prices held near a 2-1/2 year high as the Libyan unrest cut supplies from the OPEC nation.
Heavy energy-consuming sectors were among the hardest-hit. The Dow Jones Transportation Average lost 3.8 percent, with FedEx Corp down 5.1 percent at $93.29.
Despite the sharp pullback, the benchmark S&P 500 Index managed to hold a key support level near 1,313, representing highs reached earlier in February.
Many analysts have been anticipating a correction in a market that saw the S&P 500 climb last week to double its 12-year low hit in March 2009.
Still, optimism about the U.S. recovery appeared in a report that showed consumer confidence rose in February to a three-year high.
The Dow Jones industrial average lost 178.46 points, or 1.44 percent, to end at 12,212.79. The Standard & Poor’s 500 Index fell 27.57 points, or 2.05 percent, to 1,315.44. The Nasdaq Composite Index dropped 77.53 points, or 2.74 percent, to 2,756.42.
After the closing bell, Hewlett-Packard Co slumped 10 percent to $43.42 in extended trade after the Palo Alto, California-based company trimmed its 2011 revenue projections on falling consumer demand for its personal computers.
During the session, Wal-Mart Stores Inc fell 3.1 percent to $53.67 after the world’s largest retailer posted its seventh straight drop in U.S. sales.
Libyan leader Muammar Gaddafi used tanks, helicopters and warplanes to quell a growing revolt and scoffed at reports he was fleeing after four decades in power.
U.S. consumer confidence rose in February to a three-year high on improved optimism about the economy and income prospects, according to the Conference Board, a private group.
Declining stocks outnumbered advancing ones on the NYSE by 2,715 to 351, while on the Nasdaq, decliners beat advancers by 2,306 to 377.
Reporting by Chuck Mikolajczak; Editing by Jan Paschal