NEW YORK -- The Dow Jones industrials plunged below 10,000 to their lowest level of the year Tuesday before a late-day rebound that erased most of the losses -- if not lingering worries about Europe's debt crisis.
The Dow dropped more than 250 points after the opening bell and stayed under 10,000 most of the day, then charged back to finish down only 22 when signals from Washington suggested that banks would not be forced to sell their lucrative derivatives units as part of financial reform. The Standard & Poor's 500 index even managed a slight gain.
But more turbulent days are likely. Investors worry that even austerity measures by European governments will not be enough to fix the problem and fight off a prolonged economic slump in Europe, or even another global recession.
"It seems like the Europeans are playing 'tag, you're it' -- first it was Greece, and now it's maybe Spain or Portugal," said Jonathan Corpina, a New York Stock Exchange floor trader and president of Meridian Equity Partners.
"We know someone else is next. The problem is that it seems like every plan in place isn't going to satisfy the needs," he said.
Britain's Queen Elizabeth opened Parliament with a warning of hard times, saying in a speech on behalf of Britain's new government that there would be budget cuts because "the first priority is to reduce the deficit and restore economic growth."
Other European countries are imposing budget cuts as well, trying to control their debt. Investors are concerned that these steps will stifle economic growth, and that the growth of other countries, including the U.S., will inevitably be stunted.
Besides the financial crisis in Europe, investors were reminded that political issues, such as tension between North and South Korea, can threaten economic growth. Analysts said the unresolved Gulf of Mexico oil spill also contributed to the foul mood.
It was enough to send stocks into a deep dive. In just the first half-hour of trading, the Dow sank to 9,774.48, its lowest reading this year, and for much of the day threatened to set a new closing low for the year. The average is down more than 10 percent in just the past month.
But bank stocks surged, and the rest of the market followed, after Rep. Barney Frank, chairman of the House Financial Services Committee, suggested financial companies should not have to spin off their derivatives businesses, as a Senate provision would have them do.
Frank, D-Mass., said he believes banks should be able to use the complex financial instruments to hedge their own risks. Bank regulators and Obama administration officials also oppose the Senate provision, which was inserted by Sen. Blanche Lincoln, D-Ark.
The Dow has only closed below 10,000 once this year, in early February. Since then, it has traded below 10,000 seven times but each time managed to push above that psychological barrier by the close.
On Tuesday, the Dow finished down 22.82 at 10,043.75. The Nasdaq composite index closed down 2.60 at 2,210.95, and the S&P 500 gained 0.38 to close at 1,074.03.
Investors also fled from the euro and commodities including oil, and again sought safety in government bonds. That drove interest rates lower. The benchmark 10-year note's yield fell to its lowest level since April 2009.
The market's continuing slide, with frequent triple-digit drops in the Dow, recalls the unrelenting selling of the 2008 financial crash -- and begs the question of what can halt the plunge.
Jim Dunigan, managing executive of investments for PNC Wealth Management, said good news about jobs or corporate earnings could stabilize stocks by signaling that a U.S. recovery is intact.
The government's monthly jobs report in less than two weeks is expected to show that employers are ramping up hiring further. And companies will soon start giving hints about profits for the quarter that ends in June.
"You could derail growth in Europe and not derail growth in the United States, but people don't necessary use a lot of logic when they're headed to the exits," Dunigan said.
For now, traders are unswayed by upbeat U.S. economic news. They ignored a better-than-expected report Tuesday showing consumer confidence index rose for the third straight month.
"Market participants feel like they're walking on eggshells," said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y. "Every small piece of potentially bad news is being exaggerated and mentally being fast-forwarded to the worst-case scenario."
Meanwhile, the monthlong effort to cap the BP oil well that has spewed millions of gallons of oil into the Gulf of Mexico is also rattling investors, Corpina said. Oil is coming ashore across a 150-mile swath of the Gulf Coast, endangering wildlife and livelihoods in commercial fishing and tourism.
"The worry is that the situation is getting worse and there's no real fix," he said. "First we were just talking about the oil industry being affected. Now it's the environment and fishing industries. Next we'll be talking about the hotel and leisure industries."
A disappointing report on home prices added to the downcast mood. The Standard & Poor's/Case-Shiller 20-city home price index fell 0.5 percent in March from February, a sign the housing market remains weak even with mortgage rates near historic lows.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.17 percent from 3.20 percent late Monday. It fell as low as 3.07 percent, its lowest level since April 2009.
The yield on the 30-year bond briefly fell below 4 percent for the first time since October, before rising slightly. It is down to 4.07 percent from 4.08 percent late Monday.
Crude oil fell $1.06 to $69.16 a barrel on the New York Mercantile Exchange, in part a reflection of expectations that weak economic growth will curtail demand for fuel.
Overseas markets were also down sharply. Britain's FTSE 100 dropped 2.5 percent, Germany's DAX index lost 2.3 percent, and France's CAC-40 plummeted 2.9 percent. Japan's Nikkei stock average fell 3.1 percent. Hong Kong's Hang Seng fell 3.3 percent.
Associated Press writer Jim Kuhnhenn in Washington contributed to this report.