Fearing a financial rupture in Europe, investors around the world fled from risk Wednesday. They punished stocks and the euro, and the yield on a benchmark U.S. bond hit its lowest point since World War II.
Major U.S. stock indexes added to earlier losses in afternoon trading, falling 1.5 percent. The Dow Jones industrial average plunged as much as 173 points, one of its worst performances of the year.
European stocks lost even more, and the euro dropped to a nearly two-year low against the dollar.
Borrowing rates for Spain and Italy, both of which are seen as the next problem cases in a debt crisis that is rocking Europe, rose sharply as traders dumped bonds issued by those governments.
Rising demand for low-risk, easily tradable securities pushed the yield on the 10-year Treasury note to 1.62 percent, the lowest since 1945 and down from 1.74 percent late Tuesday. Yields on German government bonds, also seen as safe, turned lower.
"There's just a massive flight to safe-haven assets today," said Bill O'Donnell, head of U.S. Treasury strategy at the Royal Bank of Scotland.
He characterized the rush into U.S. bonds by citing a well-known, unsavory analogy made by Richard Fisher, the head of the Federal Reserve's Dallas bank: "The U.S. is the prettiest horse in the glue factory."
Concern about Europe lurked around every corner: The European Commission said consumer confidence fell sharply across the region last month. Spaniards withdrew money from their banks, spreading fear about that nation's ability to go on without bailouts. Spain's main stock index fell 2 percent.
An opinion poll in Greece showed that the far-left Syriza party is gaining support ahead of key elections. Syriza opposes the system of bailouts and sharp budget cuts that have kept Greece afloat but also punished its economy.
If the party wins, Greece may be forced to exit the euro currency. The shock waves could reach nations that have received bailouts, like Portugal, and those that might need them, like Italy.
Amid the tumult, Europe's executive branch called on the 17 countries that use the currency to create a "banking union" that can centrally oversee and, if needed, bail out national banks.
If Europe's financial crisis plunges it into a deep recession, global economic growth will likely falter, reducing demand for commodities and machines that power growth.
Fearing that outcome, traders pushed the stocks of heavy equipment maker Caterpillar and aluminum company Alcoa to the biggest declines among the 30 companies that make up the Dow.
The euro fell as low as $1.2387, the lowest since the summer of 2010. Benchmark stock indexes closed down 2.7 percent in Spain, 2.2 percent in Italy and 2.4 percent in France.
Just before 2 p.m. EDT, the Dow had recovered somewhat and was down 128 points at 12,452. The Dow has had a miserable May, losing almost 6 percent, and is on track for its first losing month since September.
The Standard & Poor's 500 index lost 16 to 1,316. The Nasdaq composite index fell 31 points to 2,840.
When banks or big investors the world over get frightened, they sell stocks or bonds and park the money in the safest government debt markets. They buy Japanese yen, German bonds and especially U.S. Treasurys.
It's no longer about turning a profit, said O'Donnell of RBS. That's why German government two-year notes are paying zero percent: People are simply handing their money over for safekeeping.
The U.S. Treasury market is still considered one of the safest places in the world to stash a billions in a hurry. At $11 trillion, no other market is as large, and there's always somebody ready to buy or sell them.
"When people just want to get their money back, there's not a lot of competition," O'Donnell said.
Metals, food and energy commodities all fell sharply. Crude oil lost nearly $3 to below $88 a barrel. Crude has been falling steadily since the beginning of May, when it traded as high as $106 a barrel.
Spain's borrowing costs soared to the highest level since the country joined the euro. Traders are worried that Spain won't be able to navigate the real estate crash that forced it to bail out one of its biggest lenders, Bankia.
The yield on Spain's 10-year bonds, a key indicator of market confidence in a country's ability to pay down its debt, shot as high as 6.69 percent, matching the level it hit at the height of the euro crisis late last year.
Agricultural giant Monsanto was one of the few big gainers in a sea of red. The stock jumped 2 percent after the company's CEO told investors that earnings will likely surge 25 percent this year, far more than Wall Street had been expecting. Sales were strong in its seed and chemicals business, including Roundup herbicides.
BlackBerry maker Research in Motion plunged 7 percent after the company said late Tuesday it had hired a team of bankers to help it weigh its options -- Wall Street jargon for a possible sale or reorganization. RIM's business has been crumbling as smartphone users move to iPhone and Android devices.
Daniel Wagner can be reached at http://www.twitter.com/wagnerreports.