NEW YORK †(CNNMoney.com) -- Stocks slumped Tuesday as the euro touched a fresh four-year low versus the dollar, keeping Europe's woes front and center and overshadowing better-than-expected earnings from big U.S. retailers.
Stocks had managed some early gains as investors focused on Home Depot and Wal-Mart Stores' earnings and an improved report on home construction. But the broader malaise that has afflicted the stock market soon returned.
The stock sell-off picked up steam in the afternoon as the euro flirted with and then fell below a four-year low hit on Monday.
"I think the euro issue has everyone unnerved now because they are worried it's the start of something bigger," said Tommy Williams, founder and president of Williams Financial Advisors. "But I think it's the tail-end of or aftermath of what we saw in 2008 rather than something new."
Williams said fears that European debt issues could spark a second recession are overblown as U.S. economic fundamentals remain positive.
Technology and financial shares led the declines Tuesday. Intel (INTC, Fortune 500), Cisco Systems (CSCO, Fortune 500), Hewlett-Packard (HPQ, Fortune 500) and Advanced Micro Devices (AMD, Fortune 500) were among the big losers. Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500) and a number of regional banks all declined, dragging down the KBW Bank (BKX) index by 3.7%.
The CBOE Volatility index, or the VIX (VIX), the market's fear gauge, spiked 7% to $33.24, its highest point in over a week.
Stocks ended with slight gains Monday after digging out of heavy losses accrued earlier in the day. Markets have been under pressure for several weeks amid worries about the European debt crisis, the deteriorating euro and the impact they may have on the global recovery.
World markets: Markets across the Atlantic rallied Tuesday, although the euro remained volatile.
The British FTSE 100 gained 0.9%, the German DAX gained 1.5% and the French CAC 40 gained 2.1%.
The dollar fell 0.2% versus the yen.
Asian markets ended higher, with the Hong Kong Hang Seng rising 1.2%, the Japanese Nikkei ending just above breakeven and the Shanghai Composite adding 1.4%.
Economy: A report on the housing market offered a mixed take on the health of the industry.
Housing starts rose 5.8% to a seasonally adjusted annualized rate of 672,000 in April from 635,000 in March. Economists surveyed by Briefing.com expected 655,000.
But building permits, a measure of builder confidence, fell 11.5% in April to a seasonally adjusted rate of 606,000 from 685,000 in March. Economists expected a rate of 680,000.
Another report showed that the Producer Price index (PPI), a key measure of wholesale inflation, fell 0.1% in April after rising 0.7% in March. The so-called Core PPI, which strips out volatile food and energy prices, rose 0.2% after rising 0.1% in March. Economists thought Core PPI would rise 0.1%.
Home Depot reported a 41% jump in fiscal first-quarter earnings thanks to strength in seasonal items and better profitability. The home improvement retailer also boosted its full-year earnings outlook. Shares lost 2.4%.
Wal-Mart Stores reported improved earnings from a year ago that beat estimates, but issued a second-quarter earnings forecast that was short of expectations. Separately, the company said it was cutting prices on a number of food and household products. Shares gained 1.9%.
Wal-Mart was the Dow's only gainer, with 29 of 30 Dow issues falling, led by tech and financial names.
Commodities: U.S. light crude oil for June delivery fell 67 cents to settle at $69.41 a barrel on the New York Mercantile Exchange.
COMEX gold for June delivery fell $13.50 to settle at $1,216.80 an ounce.
Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.39% from 3.47% late Monday. Treasury prices and yields move in opposite directions.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by over three to one on volume of 1.53 billion shares. On the Nasdaq, decliners beat advancers nearly three to one on volume of 2.43 billion shares.
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