By STEVE ROTHWELLAP Markets Writer
NEW YORK (AP) - There was no let-up in the flight from stocks and bonds Thursday.
Just a day after the Federal Reserve roiled U.S financial markets when it said it could step back from its aggressive economic stimulus program later this year, a slowdown in Chinese manufacturing added to Wall Street's worries.
The breadth of the fears was seen across global financial markets, from sharply lower stock markets in Asia, to falling government bond prices in Europe and the U.S.
The yield on the benchmark 10-year note rose to its highest level since August 2011. The Standard & Poor's 500 is on track for its worst performance in two months. Small-company stocks fell even more than the rest of the market, a sign that investors are aggressively reducing risk.
A Fed policy statement and comments from Chairman Ben Bernanke started the selling in stocks and bonds Wednesday.
Bernanke said the Fed expects to scale back its massive bond-buying program later this year and end it entirely by mid-2014 if the economy continues to improve.
The bank has been buying $85 billion a month in Treasury and mortgage bonds, a program that has kept borrowing costs near historic lows for consumers and business. It has also helped boost the stock market.
Alec Young, a global equity strategist at S&P Capital IQ, said investors weren't expecting Bernanke to say the program could end so quickly, and are now having to adjust their holdings to anticipate higher U.S. interest rates.
"What we're seeing is a pretty significant sea-change in investor strategy," Young said.
The S&P 500 extended Wednesday's slide, losing 25 points, or 1.6 percent, to 1,603 just after 1 p.m. Eastern Daylight Time. The yield on the 10-year Treasury note rose to 2.43 percent, from 2.35 percent Wednesday.
The yield, which rises as the price of the note falls, surged 0.16 percentage point Wednesday after the Fed's comments. It's up sharply since May 3, when it hit a low of for the year of 1.63 percent.
Government bonds are used as benchmarks for mortgage rates. The sharp increase in yields prompted investors to sell the stocks of homebuilders, whose business could be hurt if the pace of home buying slows down. Even an encouraging report on home sales Thursday failed to arrest the slide.
PulteGroup plunged $1.95, or 9.4 percent, to $18.81. D.R. Horton fell $1.92, or 8.2 percent, to $21.52.
In other stock trading, the Dow Jones industrial average was down 223 points, or 1.5 percent, to 14,888. The Nasdaq composite fell 56 points, or 1.65 percent, to 3,386.
The Russell 2000 index, which contains small-company stocks, slumped 19 points, or 2 percent, to 966. The index closed at a record high of 999.99 points Tuesday.
Markets were also unnerved after manufacturing in China contracted this month at a faster pace as demand weaken. That added to concerns about growth in the world's second-largest economy. HSBC said that the preliminary version of its monthly purchasing managers index fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction.
Japan's Nikkei index lost 1.7 percent. In Europe, the FTSE 100 index of leading British shares fell 3 percent while Germany's DAX dropped 3.3 percent.
In currency trading, the dollar rose against the euro and the Japanese yen.
In commodities trading, Gold plunged $83, or 6.04 percent, to $1,290 an ounce. The precious metal has more than 20 percent this year. It's attraction as an alternative investment has faded as the dollar and bond yields have risen.
The price of crude oil fell $2.89, or 2.9 percent, to $95.56 a barrel in New York.
Among other stocks making big moves:
- GameStop, a video game store chain that sells new and used games, rose $2.54, or 6.6 percent, to $41.07 after Microsoft backpedaled and said that there will be no limitations on sharing games on its upcoming Xbox One gaming console.
- Rite Aid fell 21 cents, or 7.1 percent, to $2.90 after the nation's third-largest drugstore chain lowered its forecast for 2014 earnings.
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