The Dow and S&P 500 closed out their sixth week of losses on Friday as further signs of a global economic slowdown set the stage for more losses ahead.
The deepening gloom raised the prospect for the S&P, which suffered its worst week since August 2010, to break below the year's low of 1,250 next week.
The Nasdaq wiped out its yearly gains on Friday and also posted its biggest weekly decline since August 2010, as the latest deterioration in sentiment came on fear of flagging Chinese growth and fresh worries about Greece's debt crisis.
The Dow closed below 12,000 for the first time since mid-March.
Reflecting the bearish sentiment, options traders eyed calls on the CBOE Volatility Index .VIX, Wall Street's so-called fear gauge, which moves inversely to the S&P 500's performance. The VIX rose 6.1 percent to end at 18.86.
"We broke below the April low, which was about 1,295 (on the S&P 500) pretty much at the open today. We are probably going to test the March lows if data next week remain weak," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
"But investors are very susceptible to any kind of news and since we are very oversold here, we could see the market instantly bounce back if we get anything remotely good."
The Dow Jones industrial average .DJI fell 172.45 points, or 1.42 percent, to 11,951.91. The Standard & Poor's 500 Index .SPX slid 18.02 points, or 1.40 percent, to 1,270.98. The Nasdaq Composite Index .IXIC tumbled 41.14 points, or 1.53 percent, to 2,643.73 at the close.
For the week, the Dow was down 1.6 percent, the S&P 500 was off 2.2 percent and the Nasdaq was down 3.3 percent.
The S&P 500 has fallen about 6.6 percent from its intraday peak early last month. Many see the benchmark index sliding back down to around 1,250, its March low, where valuations could bring investors back into equities.
At 1,250, the S&P 500 would be roughly 1.7 percent below current levels and approaching a 10 percent decline commonly referred to as a correction.
FINANCIALS DECLINE
Bank stocks, already under pressure, finished lower, with the KBW Banks Index .BKX dropping 0.4 percent after sliding more than 2 percent earlier in the day. The Federal Reserve said it will subject more banks to annual stress tests to determine whether they have enough capital and can raise their dividends.
Some of the biggest decliners were regional bank stocks that are now going to face annual tests.
Northern Trust Corp (NTRS.O) fell 1.2 percent to $46.77 and M&T Bank Corp (MTB.N) lost 1.2 percent to $84.41.
But large banks, including JPMorgan Chase (JPM.N) and Bank of America (BAC.N), rose in a late rebound, on a news report that the extra capital charge on big banks will likely be 2 percent to 2.5 percent, compared with the widely predicted 3 percent, traders said.
Bank of America shares rose 1.4 percent to $10.80 and JPMorgan added 0.2 percent to $41.05.
The S&P energy index .GSPE declined 1.9 percent while the S&P index of industrial stocks .GSPI lost 1.6 percent.
China's sales to the United States and the European Union slumped to their weakest since late 2009, excluding Lunar New Year holidays, underlining the view that the world economy is stumbling.
In another negative for stocks, the euro tumbled more than 1 percent against the U.S. dollar as fears about Greece's debt returned to the forefront and investors curbed expectations about the European Central Bank's interest-rate hikes. Investors have been recently trading the correlation between stocks and the dollar.
The PHLX semiconductor index .SOX slid 1.7 percent, sinking to its lowest since early December. The SOX fell below its 200-day moving average for the first time since last October.
About 7.47 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, compared with the daily average of 7.59 billion.
Declining stocks beat advancing ones by 2,419 to 587 on the NYSE while on the Nasdaq, decliners beat advancers by 1,987 to 593.
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