The VIX surged 27.2% to 44.94 and the S&P 500 tumbled below the key 1,100 level this afternoon following an unexpected jump in the weekly jobless claims data and heightened concerns about the euro zone region.

'A lot of stops have been triggered when the S&P futures crossed 1,100, and anybody still long will probably have to bail out and head for cover,' wrote ICAP’s Nicolas Lenoir today. The crossing 'could open the flood gates for a lot more de-risking.'

By 3:50pm (London time), the Dow Jones Industrial Average was trading at 10173.81, representing a 270.56-point (-2.6%) decline from the prior day's close. In addition, the broader S&P 500 tumbled 32.44 points (-2.9%) to 1082.61 and the Nasdaq 100 plunged 58.53 points (-3.1%) to 1814.89.

Discouraging US economic data added to investors' pessimistic perception about the global economy today. The number of Americans claiming first-time unemployment benefits unexpectedly climbed by 25,000 to 471,000 in the week ended May 15, wiping out most of the recent declines and exceeding the median forecasts surveyed by Bloomberg News. Adding insult to injury was an upward revision in the prior week's reading, which was upped from 444,000 to 446,000. This lifted the four-week moving average by 3,000 to 453,500 from the previous week's unrevised average of 450,500.

Although a recent nonfarm payroll report showed the US economy creating 290,000 jobs in the month of April, it also revealed that unemployment rose to 9.9% as more workers decided to resume their job searches.

Also bashing stock market morale today was a smaller-than-expected rise in the Philly Fed Manufacturing reading and unexpected decline in the leading economic indicators index.

The Federal Reserve Bank of Philadelphia revealed that its regional manufacturing index rose to 21.4 in May from 20.2 the prior month. Although the data suggests the sector has continued to grow, the rate of expansion missed Bloomberg's median forecast of a rise to 21.3. The smaller rise may indicate that the activity may start to cool off from here on, especially in view of the strengthening US dollar.

Elsewhere, the Conference Board's index of leading economic indicators, a barometer of future growth, surprisingly decreased 0.1% in April, a sign that the US economic expansion may slow in the next three to six months. These reports seem to suggest that the US is not immune to the troubling developments across the euro zone region.

On the corporate front, US economic bellwether Caterpillar tumbled 3.4% to $59.33, dragging a group of other industrial companies down as well. Conglomerate General Electric slid 4.7% to $16.45 and Deere & Company sank 2.7% to $57.27. Retailer Sears Holdings was another casualty, tumbling 6.2% to $93.48 a share after reporting a 38% slide in first-quarter profits, hit by weaker margins and higher costs.

Banks were also under pressure, with the likes of Bank of America, Citigroup and Wells Fargo trading between 1% and 3% lower. Yesterday, the US Senate Democrats failed to move toward a final vote on the financial-regulation bill amid resistance from both parties. However, the Democrats said they would try a second procedural vote later today.

Over in Europe, the situation doesn't seem to be improving. The inability of the euro zone to agree on Germany's ban on naked short selling has left investors feeling as though the entire region isn't able to coordinate policies fast enough to contain the debt crisis. In addition, Spain today sold 10-year bonds at a yield of 4.045%, higher than the 3.855% yield at an auction two months ago above the 3.869% average yield seen over the previous four sales. This suggests that it is becoming more expensive for the Spanish government to raise funds from the market, indirectly increasing the probability of a default on its debt obligations.

Meanwhile, German Chancellor Angela Merkel today said she will push her Group of 20 counterparts to take steps to tighten control over financial markets and add new taxes on the banking sector. Markets now await a crucial vote in the German parliament over its contribution to the European Union/International Monetary Fund rescue package. Details are expected tomorrow.