Stocks tumble on recovery concerns

The Dow Jones industrial average fell 249.85 points to close at 9,712.73

US stocks have tumbled as a drop in consumer spending fanned worries that the economic recovery will not be sustainable.

Major stock indexes tumbled more than 2%, including the Dow Jones industrials, which gave back all of a 200-point gain from Thursday.

Banks as well as energy and materials companies posted the biggest losses.

Investors raced to safer assets such as the dollar and Treasurys. At the same time, the Chicago Board Options Exchange's Volatility Index, known as the market's fear gauge, soared nearly 25% to its highest level since July.

Stocks headed lower after the Labour Department said personal spending fell 0.5% in September. The drop was in line with forecasts, but it was the largest slide in nine months and followed a 1.3% jump in August fueled by the government's popular Cash for Clunkers car rebate programme.

The slide marked an about-face for the market, which rallied strongly on Thursday after the government reported that the economy grew faster than expected in the summer. Much of the 3.5% jump in gross domestic product was tied to government spending programmes, however.

The poor report on personal spending cast further doubt on the economy's recovery, which many economists fear has been driven largely by the government stimulus. Without a rebound in consumer spending, which makes up a major part of the US economy, investors worry the recovery will not last.

With Friday being the last day of the month and the end of the fiscal year for many mutual funds, the market's gyrations could be exaggerated, analysts said. Fund managers looking to minimise taxes for shareholders often sell some of their investments as the fiscal year comes to a close.

According to preliminary calculations, the Dow fell 249.85, or 2.5%, to 9,712.73. It ended flat for October.

The broader Standard & Poor's 500 index fell 29.92, or 2.8%, to 1,036.19, and the Nasdaq composite index dropped 52.44, or 2.5%, to 2,045.11.