U.S. stocks drop sharply; Airlines sink

NEW YORK - It was a rough start to October for financial markets.

Disappointing economic news in the U.S. and abroad drove down stocks on Wednesday. The Dow Jones industrial average slumped 200 points. And nervous investors shifted their money to havens like bonds and gold.

At first U.S. stocks were driven lower by word that German manufacturing had slowed last month. The selling accelerated after a separate survey indicated U.S. manufacturing slowed as well.

"A lot of people thought this economic data was going to be robust, so when it was weak, everyone moved to reposition," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital.

Investors also were skittish following news that the first case of Ebola had been diagnosed in the U.S. They dumped airlines on concerns that travel will decline and bought a handful of drug companies working on experimental treatments for the deadly disease.

The blue chip Dow index lost 238.19 points, or 1.4 percent, to 16,804.71. The Standard & Poor's 500 index lost 26.13 points, or 1.3 percent, to 1,946.16 and the Nasdaq composite lost 71.30 points, or 1.6 percent, to 4,422.09.

The declines follow a weak performance in September, just the third monthly loss for the stock market this year. Geopolitical worries, a weakening European economy and the prospect of higher interest rates have weighed on stocks, even though corporate earnings and the economic outlook remain healthy in the U.S.

The report that set off most of the selling in the U.S. was the Institute for Supply Management's monthly manufacturing survey, one of the more closely watched economic indicators that investors look for each month. The ISM index came in at 56.6, below the 58.5 economists expected.

In Germany, Markit reported that manufacturing contracted in September, the latest sign that Europe is being affected by the economic sanctions on Russia. It was the first slowdown in 15 months.

The report came a day before Naples, Italy hosts the European Central Bank's latest policy meeting. Investors will follow closely what ECB President Mario Draghi says about possible stimulus from the central bank following recent weak economic news in Europe.

In European markets, Germany's DAX finished 1 percent lower, France's CAC 40 lost 1.2 percent and the U.K.'s FTSE 100 ended down 1 percent.

"We're in a global economy these days, and U.S. companies get a lot of their revenue and earnings from outside the U.S.," said Matthew Rubin, director of investment strategy at Neuberger Berman. "Investors have valid concerns that the European slowdown could hit companies' bottom line."

Traders moved quickly into U.S. government bonds. The yield on the 10-year Treasury note dropped to 2.39 percent from 2.49 percent late Tuesday, a big move. Gold prices rose $3.90, or 0.3 percent, to $1,215.50 an ounce.

Utility stocks, which investors favor during times of volatility because of their higher-than-average dividends, were among the few that rose Wednesday. The Dow Jones utility index, a collection of 15 utility companies, increased 0.4 percent.

Investors are looking ahead to Friday, when the U.S. government will release the monthly job figures. Economists are expecting that employers added 215,000 workers last month and no change in the unemployment rate, which stands at 6.1 percent.

Despite October's bad start, analysts believe the next three months should be good for investors.

In recent years, the stock market has risen sharply in the last three months of the year. The S&P 500 rose 10 percent in the fourth quarter of 2013 and 11 percent in the same period in 2011. The index fell in the fourth quarter of 2012, but only by 1 percent.

"The reports were negative today, but most investors believe the U.S. economy is on solid footing and is still on track for a recovery," Rubin said. "I still think it's a good time to be an investor in the market."

The S&P 500 index remains 3 percent below its all-time closing high from September 18.

Airlines were among the hardest hit Wednesday as investors feared people would be discouraged from traveling. American Airlines fell $1.09, or 3 percent, to $34.39 and Delta fell $1.25, or 3.5 percent, to $34.90. Southwest Airlines fell $1.22, or 3.6 percent, to $32.55.

Drugmakers developing potential vaccines or treatments for Ebola rose. Tekmira Pharmaceuticals jumped $4.11, or 17 percent, to $27.85 after the company said it may start clinical trials for an Ebola drug this year. NewLink Genetics, another company looking into Ebola treatments, rose $1.53, or 7 percent, to $22.95.

In commodities, the price of oil fell to its lowest price since April 2013 on concerns that a weakening global economy could lower oil demand. Benchmark U.S. crude fell 43 cents to close at $90.73 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils used by many U.S. refineries, fell 51 cents to close at $94.16 on the ICE Futures exchange in London.

In other energy futures trading, wholesale gasoline rose 1.2 cents to close at $2.450 a gallon, heating oil rose 0.5 cent to close at $2.656 a gallon and natural gas fell 9.8 cents to close at $4.023 per 1,000 cubic feet.

Silver rose 20 cents to $17.26 an ounce. Copper rose three cents to $3.04 a pound.