Stocks Sink after Euro Drops to New 4-Year Low

Investors uneasy about the news coming out of Europe Tuesday went back to selling stocks sharply lower. The falling euro and news that German regulators plan to limit some kinds of short selling fed the drop.

The Dow Jones industrial average fell almost 115 points after, giving up an early gain of 93. The Dow and broader indexes lost more than 1 percent.

The euro gave stocks a boost early in the day when 10 European Union countries sent bailout money to Greece. The move raised confidence about Europe's ability to prevent its debt crisis from spreading to other economies including the U.S.

By afternoon, though, the upbeat mood faded and the euro fell. That sapped the stock market's strength. Treasury prices rose after demand for safer investments increased.

The euro, the currency shared by 16 European nations, has been driving stock trading for weeks as investors interpreted its slide as a sign of continuing economic problems in Europe. It hit a new four-year low of $1.2162 on Tuesday afternoon.

Meanwhile, Germany said it is banning "naked" short selling, which occurs when traders bet on a stock or investment that they doesn't own. The ban covers government debt certificates and shares of several financial companies. The government said it was imposing the ban in hopes of keeping the financial markets stable.

Investors anxious about Europe's problems were further rattled by Germany's move. Naked short selling was cited as one of the factors in world markets' turbulence during the 2008 financial crisis. The latest step brought reminders of the desperation that U.S. regulators signaled in trying to stabilize the market and underscored a fear that a further drop in the euro will continue to pound world markets.

Mike Shea, managing partner at Direct Access Partners LLC in New York, said that with so many unanswered questions about the ballooning debts in Europe it isn't surprising to see traders selling.

"There is a prudent reduction of risk," Shea said.

Stock trading has been volatile for weeks. The Dow rebounded from a drop of 184 points to end Monday with a gain of about 6 points after the euro regained its early losses.

According to preliminary calculations, the Dow fell 114.88, or 1.1 percent, to 10,510.95. The Dow had been down nearly 144 points.

The Standard & Poor's 500 index fell 16.14, or 1.4 percent, to 1,120.80, while the Nasdaq composite index fell 36.97, or 1.6 percent, to 2,317.26.

Bond prices jumped, driving yields lower. The yield on the benchmark 10-year Treasury note fell to 3.38 percent from 3.50 percent late Monday.