New York, Feb 4^th (TradersHuddle.com) - Stocks took a beating on concern that out of control sovereign debt, particularly in the euro zone, and an unexpected increase in jobless claims will derail the global economic recovery. The Dollar surged against the euro as investors sold risky assets and sought safe haven assets.

The Dow Jones Industrial Average slumped 268.37 points, or 2.61%. The S&P 500 index tumbled 34.17 points or 3.11%. The NASDAQ plunged 65.48 points or 2.99%. Market breadth was negative. On the NYSE, decliners topped winners by a rate of 15 to 2. On the NASDAQ, losers outpaced advancers by a rate of close to 19 to 3.

Stocks started under pressure from overseas markets as global markets took a plunge on concerns that sovereign debt in Portugal, Spain and Greece is out of control, with investors doubting the ability of those countries to get a handle on its deficits. The worries sent the Dollar to a seven month high against the euro, pummeling Dollar denominated commodities.

Before the market opened, the Labor Department report on weekly jobless claims added fuel to the sell-off as initial jobless claims rose by 8,000 last week. The report was weaker than expected, as economists were estimating a drop of 10,000. The combination of the higher initial claims with yesterday’s tepid labor reports, left investors unsettled for tomorrow’s employment report.

European Central Bank President Jean-Claude Trichet said he is “confident” that Greece is moving in the right direction to cut its deficit. He spoke at a press briefing after the ECB left its benchmark interest rate unchanged at a record 1%. However focus in the markets started to shift toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece.

Every sector was hit hard, material stocks and financials in particular were among the biggest losers. 29 of 30 Dow components posted declines, with Cisco Systems (NASDAQ:CSCO) posting the only advance in the blue chip index. Cisco reported better than expected earnings and increased its outlook. The networking giant is optimistic that we have entered a new stage in the economic recovery, where business spending will increase, as projects that were put on hold during the height of credit crisis are now ready to start.

On the other hand Bank of America (NYSE:BAC) led the Dow Jones Industrial Average lower as shares of the biggest U.S. lender plunged 5.02% to $14.75. The bank shares were heavily hit as New York Attorney General filed civil charges against the bank and former CEO Ken Lewis, alleging they misled investors over Merrill Lynch during the acquisition last year.

The second largest decline in the Dow Jones Industrial Average was JP Morgan (NYSE:JPM), as shares of the 2^nd U.S. lender fell 4.82% to $38.35, following Bank of America’s civil charges, as it will open the door to other possible civil charges involving the deal making during the height of the credit crisis and what did the bankers knew and properly disclosed to the investment community.

Alcoa (NYSE:AA) posted the third largest loss in the blue chip index, after shares of the largest aluminum maker fell 4.30% to $12.91. Material stocks took a beating as metal prices dropped on the strength of the Dollar and on fears that unemployment in the U.S. may dampen demand.

Merck (NYSE:MRK) was the fourth worst Dow component, after shares of the maker of Zocor and Singulair fell 4.18% to $37.10. The drug maker took it again in the chin, after Pfizer reported weaker results yesterday.

The fifth largest percentage decline in the blue chip index was General Electric (NYSE:GE), after shares of the diversified conglomerate maker of aircraft engines and wind turbines slid 3.84% to $16.04. In addition to the broad market weakness, General Electric was under pressure on concern that the company’s deal to sell a majority stake to Comcast (NASDAQ:CMCSA) may face some hurdles in Washington.