NEW YORK — Financial markets slumped Thursday after the head of Europe’s central bank dashed hopes that the bank was preparing to help extinguish the region’s debt crisis.
The Dow Jones industrial average dropped nearly 200 points on a day when investors around the world reacted to every word spoken and rumor spread at a summit of European Union leaders.
The markets could be headed for another wild ride today as European officials try to strike a deal to mandate greater oversight of government budgets.
“People are very nervous that Europe will yet again fail to adequately address the sovereign debt crisis,” said David Kelly, chief market strategist for JP Morgan Funds.
Investors overlooked good news on the U.S. economy Thursday, Kelly said. Claims for unemployment benefits dropped, and wholesale companies increased their inventories in expectation of stronger sales.
Stocks fell early Thursday after Mario Draghi, president of the European Central Bank, said there was no plan for large-scale purchases of European government bonds, as many in the markets had expected.
Draghi’s remarks sent borrowing costs soaring for Italy, Spain and other countries with heavy debt burdens. European stock indexes fell, and the euro weakened against the dollar. Draghi made his comments after the central bank cut its benchmark interest rate to 1 percent and took other steps to help shore up Europe’s financial system.
Bank stocks led the way lower in the United States. Citigroup plunged 7 percent, Morgan Stanley 8.4 percent and JPMorgan Chase 5.2 percent.
The Dow fell 198.67 points, or 1.6 percent, to close at 11,997.70. The drop was the worst since Nov. 23 and ended a three-day run of modest gains. The Standard & Poor’s 500 fell 26.66, or 2.1 percent, to 1,234.35. The Nasdaq composite lost 52.83, or 2 percent, to 2,596.38.
The European crisis could still get worse and eventually force the U.S. and other countries to step in, said Ihab Salib, a global bond fund manager at Federated Investors. But the euro is unlikely to collapse because too much is at stake.
“Everybody has significantly more to lose if they break apart than if they stay together,” Salib said. “I don’t think the world is going to let the euro fall apart. They’ll do whatever it takes.”
