As investors bailed out of stocks, they shifted into safer havens, like U.S. Treasuries, pushing the yield on the 10-year note down to 1.64% from 1.74% late Tuesday. Gold, which is also considered a safe haven, fell $1 to settle at $1,714 an ounce.
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Meanwhile, Europe's debt crisis reared its ugly head once again, with Draghi warning that the region's debt problems are starting to take their toll on the economy in Germany, which has so far been relatively insulated.
Separately, the European Commission forecast a 0.3% decline in economic activity in the European Union this year, and subdued growth in 2013. The eurozone economy is expected to contract 0.4% this year, and be stagnate in 2013.
Following a morning rally, European stocks sold off sharply. Britain's FTSE 100 dropped 1.6% while the DAX in Germany and France's CAC 40 declined 2%.
Asian markets also shaved morning losses. The Shanghai Composite and Japan's Nikkei finished little changed, while the Hang Seng in Hong Kong rose 0.7%.
The dollar initially eased against the major world currencies but reversed course. The dollar rose 0.4% against the euro and 0.1% versus the British pound. The dollar declined against the Japanese yen.
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Investors also continued to eye corporate news. CNNMoney parent Time Warner shares rose 4% after the media company posted a higher-than-expected profit for the third quarter thanks to strength in its cable networks.
On Wednesday afternoon, the Federal Reserve data showed that consumer credit expanded to $11.4 billion in September.