Dollar soars as stocks hit free fall

NEW YORK (CNNMoney.com) -- The dollar skyrocketed to a 14-month high versus the euro Thursday after the blue-chip Dow stock index sank almost 1,000 points before rebounding.

The U.S. currency had also risen sharply earlier in the session, after the European Central Bank held interest rates steady but did not signal any additional measures to quell fears of a growing debt crisis in Europe.

Stocks closed sharply lower Thursday, extending the recent downturn as investors continue to worry that Europe's debt problems will slow the global economic recovery. The Dow Jones industrial average (INDU) had lost as much as 997 points in volatile trading, with questions about a technical glitch in the trading of Procter & Gamble (PG, Fortune 500) stock.

The dollar was up 1.6% against the euro to $1.2611. The U.S. currency surged 1.8% versus the British pound to $1.4833 after polls opened for the general election in the United Kingdom.

But the dollar plunged 3.6% against the Japanese yen, which is also considered a safe haven, to ¥90.21.

The ECB voted to hold interest rates at 1%, as expected, and it said economic growth will continue at an uneven pace this year. But a statement released by the ECB did not mention any plans to help Greece and other struggling members of the European Union buy buying their bonds, as some analysts had expected.

"The ECB simply refused to provide any solace to the market and as a result the euro hit fresh lows," said Boris Schlossberg, director of currency research at GFT, a New York-based trading firm. "He's basically ignoring the crisis that's brewing right in front of his eyes," Schlossberg said of ECB president Jean-Claude Trichet.

Analysts are concerned that the debt problems in Greece, where a general strike to protest new austerity measures turned violent this week, could spread to other troubled European economies.

Spain and Portugal, which both suffered downgrades of their sovereign debt last week, are considered the most vulnerable. But Italy, one of the core European Union members, is also at risk, analysts said.

Concerns about a broader financial "contagion" in Europe have weighed on the currency market for weeks, with the euro bearing the brunt of investors doubts.

"We're in a state of chaos and complete panic at this point," Schlossberg said. "There's a lack of leadership and when that happens markets tend to run first and ask questions later."