US Stocks plunge 3% on fear factor (ext.)

NEW YORK (CNNMoney) -- Investors had no place to hide on Thursday, as stocks and commodities cratered throughout the trading day.

All three indexes closed down more than 3%, clocking the worst percentage losses since August 18, 2011. At one point in late-afternoon trading, the Dow had plunged more than 500 points.

Investors also remain jittery over the fate of Europe. "There's still a lot of fear that September 2011 is going to be a lot like September 2008," said Larson, "and Greece is going to play the role of Lehman Brothers."

The Dow Jones industrial average (INDU) closed down 391 points, or 3.5%. It's down 7% in 2011.

The S&P 500 (SPX) lost 37 points, or 3.2%, with only six of its components showing gains. The S&P is down 7% for the year. The Nasdaq Composite (COMP) dropped 82.5 points, or 3.3%, and more than 10% for the year.

Still, the S&P 500 narrowly avoided closing below 1,120, a significant technical level that would have made tomorrow's opening as negative as today, said Samuel Ginzburg, a senior trader at First New York Securities. "That number is absolutely crucial in our opinion," he said.

"The only thing that goes up in a down market is correlation. This is why you're seeing energy, stocks and other commodities all drop," said Bryce James, a partner at Shield Investment Advisors, a fixed-income fund of hedge funds.

The selling started early, with world markets logging steep declines. Investors globally sold out of stocks as weak manufacturing data from China sparked fears of a slowdown there.

"There was a lot of concern over China because heretofore it's been the one pocket of unstoppable strength in the global economy," said Paul Larson, chief equity strategist at Morningstar. "If that stops and China becomes a drag on worldwide growth, it could have big implications here in the U.S."

While the so-called Operation Twist was what investors had been anticipating, it wasn't enough to just meet expectations.

"Once the Fed made the announcement, the anticipation was gone, and people began to look at a deeper level what it means when the Fed doesn't have any monetary tools to make a big difference in the economy," said Steve Rogers, a portfolio manager at California Investment Trust.

Copper prices fell 7.4%, oil skidded 5.1% and silver tumbled 8.4%. Gold dropped 3.4%

The dollar moved higher against the euro and the British pound, but was slightly lower versus the Japanese yen.