Stocks were sharply lower on Wall Street on Friday after a painful dose of weak economic data reignited fears that a recession may be imminent. A new round of woes in the financial industry also contributed to the sell-off.

The Dow Jones industrials dropped more than 100 points right after the opening bell, and closed down more than 300 points, or 2.5 percent. The Standard & Poor's 500-stock index fell even more steeply.

The market was poised for a poor opening after American International Group, the world's largest insurer, posted the worst quarterly loss in company history Thursday night. Shares of financial services firms, an albatross on the market for months, fell again on Friday after AIG stock tumbled more than 6 percent in early trading.

The sell-off accelerated after a bellwether report on Chicago-area business activity unexpectedly plunged to its lowest level in more than six years. Business contracted in February, capping the worst two-month decline since 1980. The report, from the National Association of Purchasing Management, is considered a good predictor for manufacturing activity across the country.

The Dow closed off 315.79 points, at 12,266.39. The S.&P. fell 2.7 percent to 1,330.63, and the technology-heavy Nasdaq composite index dropped 2.6 percent to 2,271.48.

The losses followed declines in overseas markets. The Nikkei 225 index in Tokyo lost more than 2.3 percent, and the major European indexes were down around 1.5 percent at the close.

The Chicago report was only one piece of a host of poor economic news that rattled investors Friday morning, underscoring anxieties that the nation is facing one of the worst economic landscapes in decades.

Consumer confidence plunged in February to a 16-year low, as rising inflation forced Americans to spend more and save less. Income growth slowed in January and consumer spending was flat when adjusted for inflation, the Commerce Department said. For the first time in at least 50 years, Americans spent more than they earned for the third consecutive month.

"All-out recession fears is what it is," said James Paulsen, a strategist at Wells Capital Management, about Friday's market woes.

Treasury yields plummeted as investors flocked to the relative safety of government bonds. The dollar, already at a record low, continued to fall against the euro, and crude oil futures ticked up.

Investors were also spooked by a report from UBS that predicted financial companies will face an additional $350 billion in losses tied to the subprime mortgage collapse. That figure would be on top of the approximately $160 billion in losses that have already been disclosed by financial firms worldwide.