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 Friday as European officials try to strike a deal to mandate greater oversight of government budgets.
In the United States, claims for unemployment benefits dropped, and wholesale companies increased their inventories in expectation of stronger sales, but investors seemed to overlook the good news.
Stock in the United States 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 Inc. plunged 7 percent and Morgan Stanley 8.4 percent. JPMorgan Chase & Co. slid 5.2 percent, the most of the 30 large companies in the Dow average.
The Dow fell 198.67 points, or 1.63 percent, to close at 11,997.70. The last time the Dow closed below 12,000 was Nov. 29. The Standard & Poor's 500 index fell 26.66, or 2.11 percent, to 1,234.35. The Nasdaq lost 52.83, or 1.99 percent, to 2,596.38.
The dollar and U.S. Treasury prices rose as traders shifted money into assets seen as relatively safe. The yield on the benchmark 10-year Treasury note dipped to 1.97 percent from 2.03 percent late Tuesday.
The euro summit that began late Thursday was billed as a make-or-break moment to convince markets that Europe will take bold enough action to prevent the euro from breaking up. Reports that Germany had rejected some proposals for stemming the crisis sent the Dow lower in the last half-hour of trading.
The yield on benchmark 10-year Italian government bonds jumped half a percentage point, a huge move, to 6.47 percent as traders sold European government debt after Draghi's remarks.
Markets had interpreted recent remarks by Draghi to mean that the ECB would step in to buy government bonds if nobody else would.
McDonald's Corp. rose half of 1 percent, the only stock in the Dow that was higher. The world's largest fast-food chain said revenue at stores open at least 13 months jumped on stronger sales around the world.
Costco Wholesale Co. fell 2 percent after reporting earnings that fell short of analysts' expectations. The retailer said higher costs ate up much of a 12.5 percent increase in sales.
DemandTec Inc. jumped 56 percent on news that International Business Machines Corp. plans to buy the software company for $440 million in cash. DemandTec's software helps businesses set prices for products they sell.