A bad day in the financial markets was made worse by an apparent trading glitch, leaving traders and investors nervous and scratching their heads over how a mistake could send the Dow Jones Industrial Average into a 1000-point tailspin.

At its afternoon low, the Dow Jones Industrial Average had plummeted 998.50 points, its biggest intraday point drop ever. The swing from its intraday high was 1010.14 points.

The markets were already on edge before the midafternoon collapse as traders watched televised scenes of rioting in Athens following the Greek government’s approval of its portion of the European Union and International Monetary Fund bailout.

Throughout the day, markets around the globe posted big declines as investors reacted with disappointment to the failure of the European Central Bank to signal any heightened concern about the spiraling Greek debt crisis.

The Dow eventually rebounded to close down 347.80 points, or 3.2%, at 10520.32, its worst percentage decline since April 2009.

Standard & Poor’s 500-stock index dropped 3.2% to 1128.15 Bond, commodity and currency markets were all roiled as investors fled from risky assets toward the safety of gold and Treasurys.

The Chicago Board Options Exchange Volatility index, or VIX, which tracks volatility in stock-index options, at one point soared 60% to nearly 40 and ended the day up nearly 32%.

Traders were stunned by the sudden sharp move.

‘It was absolute chaos,’ said Steven Starker, co-founder of brokerage firm BTIG LLC, who said the trading in the volatile half-hour reminded him of the selloff during the market crash in October 1987.

‘You sit there and stare at the screen and don’t quite know what to make of it,’ said Mike Ryan, the chief investment officer for UBS Wealth Management Americas.

Representatives of major U.S. exchanges and the Securities and Exchange Commission convened an emergency conference call late Thursday to examine potentially erroneous trades in multiple stocks. The trades took place between 2:40 p.m. and 3:00 p.m. EDT, according to a notice from Nasdaq OMX Group Inc. Officials late in the day said any trades that were 60% away from the market price at 2:40 p.m. would be canceled.

Stocks from Dow components Procter & Gamble and 3M to Accenture all suffered precipitous declines. Shares of Procter & Gamble had tumbled as much as $22.79, or 37%, at one point after sharp declines in the stock market sent the stock below a key circuit-breaker level. Accenture traded as low as one cent before closing at $41.09, down 2.6% for the day. Traders also noticed errant trades among exchange-traded funds, including the iShares Russell 1000 Value Index fund, which dropped from close to $60.00 to 7.5 cents.

Before the focus shifted to the U.S. stock market, all eyes were on Europe, where investors bailed out of stocks, bonds and the euro.

Even as the Greek parliament approved the 110 billion ($141 billion) package, the common currency was falling to $1.2629, its lowest level since last March against the U.S. dollar. It also slid sharply against the Swiss franc, as traders said the Swiss National Bank appeared to abandon months-long efforts to prevent their currency from rising for at least the time being. Bearish sentiment against the euro has been building for months, with traders and longer-term investors, such as mutual funds, placing bets that the euro would decline against backdrop of the Greek debt crisis.

But the dam broke Thursday following a meeting of the ECB’s governing council, when, in the eyes of market participants, ECB President Jean-Claude Trichet, seemed to focus his attention to potential future inflation issues rather than the problems of the sovereign-debt crisis. In particular, Mr. Trichet said the ECB council didn’t discuss the possibility of stepping in and buying European government bonds as a way to help stabilize markets.

As far as the ECB is concerned, the day’s news suggested ‘the cavalry is not coming yet and [the crisis] might have to get worse to prompt assertive action,’ said Sophia Drossos, co-head of global-foreign-exchange strategy at Morgan Stanley.

‘Investors were hoping that President Trichet would give some sense of taking extraordinary measures for trying to contain the contagion,’ Ms. Drossos said. ‘Instead he gave the impression that the ECB is going to be reactive rather than proactive, and that hurt sentiment’ toward the euro, she said.

European bond markets also reacted with big price declines on heavily indebted countries. The yield on Portuguese 10-year notes jumped to a new crisis high of 6.33%, with the spread over German 10-year notes rising by 3.5 percentage points.

Tom Lauricella and Peter A. McKay

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