Stocks recovered some ground before closing time this afternoon after falling 998 points earlier -- with half the plunge coming in a stunning freefall over just five minutes.
The selloff came during a week of negative sentiment about the state of Greece's finances and growing worry that other European nations also face serious debt problems. The Dow Jones Industrial Average ended the day with a 3.2 percent loss, or 347.8 points, after falling as much as 9 percent before 3 p.m., in its worst intra-day drop since 1987. The Dow closed at 10,520.32, a two-month low.
The panic selling was a jarring shift after several months of relative stability for stocks. The Standard & Poor's 500 Index fell briefly by 8.6 percent, its worst day since December 2008, during the financial crisis. That index ended the day down 3.2 percent, at 1,128.15.
"There's a lot of anxiety, which inevitably will lead to a lot of volatility," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds, which oversee about $400 billion of assets out of San Francisco. Traders are anxious, he said, and "When you have a market like this and you see riots in Greece, that certainly doesn't help matters much."
There were reports that the sudden drop was caused by a trader who mistyped an order to sell a large block of stock. The drop in that stock's price was enough to trigger "sell" orders across the market, the Associated Press reported. The New York Stock Exchange said there were no technical errors with their system.
Economists said the stock market plunge underscored the fragility of the global economic recovery. For now, they said, debt problems in Greece and Europe could slow the US economic rebound, but shouldn't derail it.
The European crisis comes as the US economy has begun to gain strength. Economic activity has expanded at a solid pace over the past several months, and employers added more than 160,000 jobs in March. Many economists are forecasting that employment increased by at least as much in April.
The Labor Department reports April employment data tomorrow.
Mark Zandi, chief economist at Moody's Analytics, estimated the odds of the US economy slipping back into recession at less than one in five. John Silvia, chief economist of Wells Fargo & Co., said the US recovery has probably built enough momentum to weather the problems in Europe.
"We have sustainable economic growth, sustainable improvement in the labor market," Silvia said. "The pace of growth may be less than we want to see, but I don't see us doing a double-dip recession."
Greece's parliament today passed a $40 billion austerity bill, a condition to getting a bailout from the European Union and the International Monetary Fund, while thousands of people protested in the streets. Meanwhile, the euro fell 1.1 percent, to $1.27, as fears spread that Portugal, Spain, Italy, Ireland and Britain could be next in Europe's debt contagion.