Confidence plunge helps send stocks down

A sharp drop in consumer confidence helped set off a drop in stocks on Tuesday and renewed worries about the strength of the U.S. economic recovery.

The Conference Board reported a nearly 10-point drop in its consumer confidence index this month — far larger than expected — as consumers worried about the scarcity of jobs and reacted to negative news about the Gulf of Mexico oil spill and European debt crisis.

The crumbling of confidence added to other recent news showing a collapse in housing market activity and sputtering in other sectors, raising worries about whether the momentum of recovery will continue. A report on consumer spending on Monday, however, showed that consumers have kept up a solid pace of buying, whatever their mood may be.

Stocks fell on the increasingly gloomy news at home and abroad, with the Dow Jones Industrial Average plunging back through the 10,000 level and losing as much as 255 point to 9,883, a 2.5 percent drop. The Standard & Poor’s 500 index fell by even more and was within striking distance of its low for the year.

Andrew B. Busch, a currency strategist at BMO Capital Markets, said stocks are falling all over the world on renewed worries about the economy not only in the United States but in Europe, China and other regions.

“Bad things are happening,” he said. Foremost on investors minds is increasing signs that Spanish banks are in trouble, China’s stellar growth in tailing off, and Greek and Spanish citizens are striking against the deep proposed budget cuts on that continent.

Markets also are reacting to a warning from the San Francisco Federal Reserve that U.S. states are suffering a monumental fiscal crisis that will only get worse this year, he said.

A revision down in the Conference Board’s index of leading economic indicators for China set off a 4.3 percent plunge in China’s Shanghai composite index of 4.3 percent to a 14-month low. That sent stocks falling throughout the rest of Asia and Europe in sessions overnight.