Stocks drop steeply on recessionary fears

The Dow’s lowest close this year is 10,719 on Aug. 10 and it has dropped more than 15 percent in two months, as investors retreated from risk and into more secure options, such as Treasurys. 

Federal Reserve Chairman Ben Bernanke announced plans on Wednesday to reorganize its portfolio in an attempt to lower long-term interest rates to spur growth as the recovery falters.

In the next nine months, the Fed will buy $400 billion of longer term securities while selling off the same amount in short term bonds.

The central bank hopes that providing an avenue for people and businesses to borrow money more cheaply will encourage them to spend it and provide a lift for the stagnating U.S. economy. 

Jobless claims remained above 400,000, a level that’s not enough to signal any improvement in the labor market. 

Meanwhile, there’s growing concerns about Europe’s economy as the euro, the currency used by 17 countries, is dragged down by Greece, which is teetering close to default. 

Also on Thursday, a report about European business activity fell to its lowest level since July 2009, a possible indication of a recession. 

Christine Lagarde, head of the International Monetary Fund, said Thursday at the annual meeting of the IMF and the World Bank that the world economy is “entering a dangerous phase.” 

Still, many economists, including Bernanke aren’t predicting another U.S. recession as the economy continues growing, albeit slowly.