NEW YORK – The problems that have weighed on investors all summer — European debt and fear of a new recession in the United States — hammered the stock market Friday. The Dow Jones industrial average fell more than 300 points.

The plunge erased the week’s gains for stocks and sent the Dow below 11,000. It had not closed below that level since Aug. 22, after several weeks of extraordinary volatility.

The European Central Bank said a top official, Juergen Stark, was resigning almost three years before the end of his term in 2014, revealing deep disagreement over how to solve economic problems in Europe.

Traders fear that one of the continent’s heavily indebted economies could default, an event that would ripple through the global banking system and make it difficult for other European countries to borrow money.

Such an outcome could tip the world economy back into recession. In the U.S., economic growth is already slowing, and unemployment is stalled above 9 percent.

“Markets always vacillate between fear and greed, and today we’re coming down pretty much all on the fear side,” said Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group.

Investors drove the yield on the 10-year Treasury note to 1.92 percent, its lowest since the Federal Reserve Bank of St. Louis began keeping daily records in 1962. The yield was 1.99 percent a day earlier.

Wall Street traders have poured money into U.S. government debt all summer, driving the price up and the yield, which moves in the opposite direction, down.

Even after Congress narrowly met a deadline for raising the limit on how much the government can borrow, barely avoiding a default for the country, investors think the U.S. government can be counted on to pay its bills.

Word of the resignation of Stark, the top economist at the ECB, came shortly after U.S. markets opened. He was an advocate for higher interest rates, and published reports said he left because he opposed the bank’s extensive purchases of debt issued by European countries.

Stark’s departure rattled traders because the U.S. economy is “teetering on the verge of recession,” and the outcome in Europe might determine which way it goes, said Andrew Goldberg, market strategist with J.P. Morgan Funds.

He said traders are latching onto any piece of news that might signal a positive or negative outcome in Europe.

Banks in Europe hold bonds issued by nations deep in debt, including Greece, Ireland and Portugal, but investors don’t know exactly how much each bank holds from each country.

The value of the bonds would quickly diminish if one of those nations defaults. Banks might stop lending to each other because of fears that some would fail.

Stark’s departure was seen as “a bit of news that contributes to a worse outcome, so if you’re thinking of being a seller, today that’s what you are,” Goldberg said.

High volatility returned to the market Friday. One measure known as the VIX, which measures investors’ fears, increased 18 percent.

Forrest, of Fort Pitt Capital, said the sell-off had brought some stock prices “within buying range.” She said traders have few other places to invest, with Treasury yields near record lows and currency markets gyrating because of fears about the euro.

 

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