S&P 500 pares worst loss since 2011 while small caps shares gain

NEW YORK -- An afternoon rebound helped the Standard & Poor's 500 Index pare its biggest intraday plunge since 2011 amid speculation the selloff was overdone.

The S&P 500 lost 0.8 percent to 1,862.49 at 4 p.m. Wednesday in New York, trimming an earlier plunge of as much as 3 percent. The index pared its gain for the year to less than 0.8 percent and has tumbled 7.4 percent since a record on Sept. 18. The Dow Jones Industrial Average fell 173.45 points, or 1.1 percent, to 16,141.74 after dropping as much as 460 points. The Russell 2000 Index of smaller companies jumped 1 percent.

"Investor sentiment has clearly been pummeled of late as some signs of surrender are forming," Tobias Levkovich, Citigroup's chief U.S. equity strategist in New York, wrote in a note Wednesday. "While no one ever rings a bell at the bottom and there is not generally a cathartic, cataclysmic crescendo of capitulation, fear is emerging which intimates that a floor may be within reach."

The Chicago Board Options Exchange Volatility Index, the benchmark gauge of options prices known as the

VIX, jumped 15 percent to 26.25, the highest level since 2012, amid demand for protection against losses in equities. Almost 12 billion shares changed hands in the United States, the most since October 2011.

Earlier in the day, the S&P 500 wiped out its gains for the year as banks sank after reporting earnings while a drop in retail sales reignited concern about the economy and a second health worker in Texas caught Ebola.

Retail sales in the U.S. dropped more than forecast in September, decreasing 0.3 percent after a 0.6 percent gain in August that was the biggest in four months, Commerce Department figures showed. The median forecast of 81 economists surveyed by Bloomberg called for a 0.1 percent decline.

Another report Wednesday showed manufacturing in the Federal Reserve Bank of New York's region slowed more than projected in October. The bank's so-called Empire State index dropped to 6.2 this month from an almost five-year high of 27.5 in September. Readings greater than zero signal growth.

Concern about the spread of Ebola has also started to affect investor psychology, contributing to a decline of as much as 22 percent in U.S. airline stocks since a high in September and contributing to plunges in broader averages. A second health-care worker in Texas tested positive after caring for an Ebola patient, opening new questions about oversight lapses. The Bloomberg U.S. Airlines Index lost 0.5 percent Wednesday, paring a drop of as much as 4.9 percent.

"You have more concerns about Ebola, Empire manufacturing and retail sales numbers were quite poor, and even some earnings have been disappointing," Matt Maley, an equity strategist at Miller Tabak & Co in Newton, Massachusetts, said in a phone interview.

Financial stress is rising, according to gauges maintained by the Federal Reserve Banks of Chicago and St. Louis, as well as measures compiled by Goldman Sachs and Bank of America Merrill Lynch. The deterioration reflects tightening credit conditions for companies, higher stock-market volatility and a stronger dollar.

"The market was already in a bad, bad mood ahead of the largely known weakness in retail sales this morning," Andrew Wilkinson, chief market analyst at Interactive Brokers, wrote in a note Wednesday. "Even the best report of the year would have failed to make much impact on investor sentiment captivated by signs of the bear and other factors such as the spread of the Ebola virus."

In other markets, Greece's Athens Stock Exchange Index plunged 6.3 percent, the biggest drop since 2012, amid concern the government's plan to end its bailout early will leave the nation unable to raise funding.

Investors are watching earnings for signs of the economy's strength. More than 50 S&P 500 companies are releasing results this week, according to data compiled by Bloomberg. Profit for the members of the index probably rose 4.8 percent in the third quarter and sales increased 4.2 percent, analysts projected.