NEW YORK -- Stocks took their deepest plunge in more than a year Thursday as fears grew that Europe's debt crisis could spread around the world and undermine the U.S. economic recovery. The possibility has been brewing for weeks, but analysts said some investors are just waking up to it.

The Dow Jones industrial average fell about 376 points, its biggest point drop since February 2009. All the major indexes were down well over 3 percent and are showing losses for 2010. Interest rates fell sharply in the Treasury market as investors once again sought the safety of U.S. government debt.

The number of people applying for unemployment benefits last week rose unexpectedly, and the Greek government's response to its debt crisis sparked new protests in Athens, but analysts said neither event appeared to set off Thursday's selling.

They said more investors seemed to be grasping the possibility that the U.S. recovery could be in jeopardy, and that many were realizing that the stock market's big rebound since March 2009 might not have been justified.

"The economic recovery story has started to look like a mirage," said Tom Samuels, manager of the Palantir Fund in Houston. "If that's correct, stock prices are well ahead of economic reality."

Investors are concerned that the debt problems in countries like Greece and Portugal will spill over to other countries in Europe, cause a cascade of losses for big banks and in turn halt economic recovery in the U.S. and elsewhere.

They're also worried that China might take steps that will limit its economic growth, which also would affect the U.S. recovery. Analysts said the market is vulnerable to rumors about any of the major economies right now.

The Standard & Poor's 500 was down almost 12 percent from its April 23 closing high for the year. Most analysts consider a drop of more than 10 percent from a recent high to be a "correction." This is the market's first correction since stock indexes hit a 12-year low in March last year. The fact it has occurred in just 19 trading days shows how anxious traders are.

Analysts said traders were retreating from any investment thought to be too dangerous to own right now. That has meant heavy selling in stocks, commodities and troubled currencies like the euro.

Investors appear increasingly convinced that European countries will need to adopt stringent spending cuts to pay down their debt loads, Yardeni said. Such cuts likely would lead to long economic slumps for those countries, a prospect that investors may be accepting as reality as they sell stocks and the euro, the currency shared by 16 European nations.

The euro, a key indicator of confidence in Europe's economy, managed to rise to $1.2491 in late trading, a day after hitting $1.2146, a four-year low.

The Dow has fallen 1,137 points since hitting its 2010 high April 26. It has fallen by at least 100 points in nine of the 19 trading days since its peak. Thursday's decline was the worst for the Dow since February 2009, and the S&P's worst since April 2009. All of the 30 Dow stocks fell, while 497 of the 500 S&P stocks closed lower.

The Nasdaq composite index fell more than 4 percent.

The dour market got some confirmation from a Federal Reserve official that Europe's problems could be a "potentially serious setback." Fed Governor Daniel Tarullo said that if the debt crisis curbed lending and the flow of credit globally, that would endanger the U.S. and global recoveries.

A private research group, meanwhile, reported an unexpected drop in its index of leading economic indicators, a sign that growth could slow this summer. The Conference Board's index of future economic activity slipped in April for the first drop since the stock market's bottom last year.