Stocks plunge as service sectors deteriorate

US stocks plunged yesterday, and it's not because the Reserve Bank of Australia raised interest rates by 25 basis points to 7 percent.

From MarketWatch:

Stocks plunge Tuesday, with the Dow industrials tumbling to their biggest drop in nearly a year, after a key service sector gauge contracted in January -- possibly signaling that the U.S. economy is already in recession.

The Dow Jones Industrial Average tumbled 370 points, or 2.9%, to 12,265, with all of its 30 component stocks in negative territory. It was the worst percentage decline for the Dow since February 2007, when the index fell 3.3%. It was also its worst point drop since August...

The Institute for Supply Management (ISM) said its nonmanufacturing index fell to 41.9% in January from 54.4% in December, well below the 53.0% expected by economists. Readings below 50% indicate most firms are contracting. See full story.

European stocks plunged too. Bloomberg reports:

The Dow Jones Stoxx 600 Index retreated 3.2 percent to 318.73, extending its decline after the report on U.S. service industries, which reflect almost 90 percent of the economy, unexpectedly shrank in January...

Europe also had its share of poor economic data yesterday. From Bloomberg:

Europe's service industries grew at the slowest pace in more than four years and retail sales dropped the most since 1995 after stock markets slumped, the U.S. economy faltered and inflation accelerated.

Royal Bank of Scotland Group Plc said its purchasing managers' index for services dropped to 50.6, the lowest since July 2003, from 53.1 in December. A reading above 50 indicates growth. Retail sales in the euro region declined 2 percent from a year earlier, a record, the European Union's statistics office in Luxembourg said today.

The UK service sector, however, bucked the trend, with its PMI edging up to 52.5 in January from 52.4 in December. More in keeping with the worldwide downbeat tone yesterday was Nationwide's UK consumer confidence index, which fell to a record low of 81 in January from 85 in December.