Dow off 125 as Europe's debt crisis slams stocks

Updated: 7:43 p.m. ET

Stocks suffered their worst one-day losses since at least early
March after a very weak auction of Spanish bonds battered European stocks and reminded investors around the world that Europe's debt crisis is far from over.

The sell-off was also part of a continuation of Wall Street's concern about what markets would look like if the Federal Reserve holds back on more stimulus for the economy. But there was some good news for investors: Losses were trimmed substantially in the afternoon.

The European worries sent many investors looking for safety, which meant money flowed into U.S. markets. That pushed the dollar higher. Gold (-GC), crude oil (-CL) and interest rates were lower.

The Dow Jones industrials ($INDU) closed down 125 points to 13,075; the blue chips had been down as many as 179 points. The Standard & Poor's 500 Index ($INX) dropped 14 points to 1,399, and the Nasdaq Composite Index ($COMPX) fell 45 points to 3,068.

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However, bulls were able to keep the S&P 500 above 1,395, its 20-day moving average and an important support level.

The Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, was down 38 points to 2,745. Apple contributed about 4 points to the index's loss. Microsoft (MSFT), down 73 cents to $31.21, contributed more than 5 points to the loss. (Microsoft is the publisher of MSN Money.) 

To be sure, the U.S. market had been poised for a fall, particularly the Nasdaq and Nasdaq-100 indexes. Both were pushed higher by Apple's 55% gain for the year  through Tuesday when it closed at a record $629.32 after hitting an all-time high of $632.21.

The year has been remarkably stable. The Dow has lost 100 points or more just twice in 2012. By this time a year ago, it had sustained seven losses of 100 points or more.

Ahead on Thursday

Major retail chains will report March sales on Thursday. In addition, outplacement firm Challenger Gray Christmas will report on mass layoffs in March. The Labor Department's weekly report on jobless claims comes out. 

Earnings are due from used-car dealer Carmax (KMX), Constellation Brands (STZ), Pier 1 Imports (PIR) and WD-40 (WDFC).

Futures trading suggests a flat open on Thursday, which will be the last day of trading this week. The stock market is closed Friday for Good Friday. Bond trading stops at noon.

Investors love Bed Bath & Beyond results; jeer results from Ruby Tuesday

After the close, shares of Bed Bath & Beyond (BBBY) were up 5% to $69.50 after fiscal-fourth-quarte​r results easily beat estimates. Revenue of $2.79 billion was up 9.1% from a year ago. Earnings per share of $1.48 were up 32% from a year ago. Same-store sales were up 5.9% from a year ago. In fiscal 2011, same-store sales grew 7.8%.

The company is projecting earnings of 79 cents to 83 cents a share; analysts are looking for 82 cents a share.

Meanwhile, shares of Ruby Tuesday's (RT) were off nearly 12% after hours to $7.89. Results were hurt by a 5% decline in same-store sales and a 6.4% decline in operating expenses. The company forecast earnings after one-charges of 43 cents to 48 cents; analysts have been expecting 56 cents.

Crude oil drops below $102
Crude oil settled down $2.54 to $101.47 a barrel in New York after the Energy Department reported an increase of some 9 million barrels in domestic inventories, much larger than expected. Brent crude settled down $2.52 to $122.34 a barrel.

The retail price of gasoline averaged $3.928, up slightly from Tuesday, AAA's Daily Fuel Gauge Report said.

The price decline hit energy shares. Exxon Mobil (XOM) dropped 85 cents to $84.98. Chevron (CVX) fell $1.54 to $105.60. The Energy Select Sector SPDR (XLE) exchange-traded fund fell 92 cents to $70.90.

Gold settled down $57.90 to $1,614.10 an ounce, its biggest one-day decline since Feb. 29, when it fell $77.10, and its lowest price since Jan. 4. Silver (-SI) dropped $2.221 to $31.04 an ounce, a 6.7% decline and its largest decline in five weeks. Copper (-HG) settled down 12.85 cents to $3.7905 a pound.

The metals decline was mostly seen as a reaction to the suggestion in Federal Reserve minutes that the Fed isn't likely to add stimulus to economy without a seriously faltering economy.

Freeport-McMoRan Copper & Gold (FCX) was off 55 cents to $38.03. Newmont Mining (NEM) dropped $1.81 to $48.53. U.S. Steel (X) fell 98 cents to $28.70. Alcoa (AA), which reports first-quarter earnings on Tuesday, fell 25 cents to $9.81.

Interest rates were lower, with the 10-year Treasury yield falling to 2.239% from 2.284% on Tuesday.

Why Spain hurt Europe
The auction of Spanish government debt was a big disappointment. The government sold just 2.589 billion euros ($3.43 billion) worth of bonds, at the bottom of its planned range of 3.5 billion euros, and at yields that were well above previous auctions. Most of the debt was bought by Spanish banks.

Following the auction, yields on 10-year Spanish government debt rose to 5.669%, from 5.445% Tuesday, the highest level since Jan. 9.

The auction is a first verdict on the new government's just-announced budget plan, which calls for severe spending cuts and tax increases to trim a persistent deficit, The Wall Street Journal said.

Many economists have warned that deep austerity -- European policy makers' favored weapon against the debt crisis -- could plunge weak economies into deep contraction. Spain is struggling with 23% unemployment. The government forecasts its economy will shrink 1.7% this year.

Non-manufacturing industries grew in March
Service industries in the U.S. grew in March, capping the strongest quarter in a year and indicating the world’s largest economy will keep generating jobs.

The Institute for Supply Management’s non-manufacturing index fell to 56 from a one-year high of 57.3 in February. Last month’s reading still topped the average for the previous economic expansion. The dip was not expected; most economists had predicted a small gain.

Since mid-2011, the industries that account for almost 90% of the economy have outpaced gains in manufacturing, which had been at the forefront of the two-year expansion.

"No longer can we say that only manufacturing is powering the economy forward," Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Bloomberg News. "The general trend is very encouraging."

ADP says businesses added 209,000 jobs in March
Businesses added more than 200,000 jobs in March, giving fresh evidence of continued improvement in the labor market, according to the ADP National Employment Report.

The report was in line with expectations. 

Analysts said it did not change their forecasts for the government's more comprehensive labor market report for March due on Friday, which includes both public- and private-sector employment. The Labor Department is expected to show nonfarm payrolls gaining 200,000 jobs with the unemployment rate holding at 8.3%.

Best Buy shares face a downgrade

Best Buy (BBY) shares were down 60 cents to $22.95 after Standard & Poor's placed the company's BBB- rating on a credit watch with negative implications. That means a downgrade to junk status is possible.

The issue: Best Buy's business model isn't working, S&P said today, and the retailer has shown little progress to improve its performance. The ratings agency will meet with company management before issuing a final determination on a downgrade.

P&G leads the Dow; Yahoo slides on layoff news

Only four of the 30 Dow stocks were higher -- Merck (MRK), AT&T (T), Procter & Gamble (PG) and Caterpillar (CAT).

In addition, about 50 S&P 500 stocks and just six Nasdaq-100 stocks, led by Priceline.com (PCLN),Yahoo (YHOO) and Expeditors International (EPXD).

American International Group (AIG), Avon Products (AVP), the target of a takeover bid, and apparel retailer Gap (GPS) were the S&P 500 leaders. SanDisk was the laggard as well as the biggest loser among Nasdaq-100 stocks.

Yahoo (YHOO), which announced it's laying off 2,000 workers, was up 9 cents to $15.27.

Financial stocks were the market's weakest sector.

JPMorgan Chase (JPM) was down $1.01 to $44.41. The Commodity Futures Trading Commission said the company will pay $20 million to settle charges that it unlawfully handled customer segregated funds at Lehman Brothers.

Citigroup (C) was down $1.33 to $35.04. Bank of America (BAC) dropped 29 cents to $9.20 and was the weakest Dow component.