It was a terrible day for a stupid US stock market trader to make a mistake (the popular term is a fat finger fuck-up) by inserting billion instead of million. In just 10 minutes, that stupidity wiped about $US1 trillion from the value of Wall Street.

Citigroup was fingered by some traders for the error, but the bank said it had checked and denied any involvement.

The News York Stock Exchange blamed computerised trading in an echo of the Black Monday plunge in 1987. Bloomberg quoted Larry Leibowitz, the chief operating office of the NYSE Euronext (the NY Stock Exchange), as saying:

“If you look at the charts you can see fairly clearly where the trades came in. It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split instant because there really was no liquidity in electronic markets.”

Whatever it was, the trigger about 4.30am our time (2.30pm New York time) came as markets were on edge, but totally unprepared for what was about to happen.

Just as share prices were wobbling lower, the error in at least one share, said to be consumer products giant Proctor and Gamble, sent the Dow Jones average plunging to its biggest ever single fall — about 600 points to be just over 998 points lower.

The crash stunned markets and caused panic selling of oil and other commodities, other shares, gold prices surged and investors started panic buying huge quantities of US government securities for safety, driving yields lower to levels not seen since September 2008. The US dollar soared, the euro fell sharply, hitting an eight-year low against the yen, which was also a safe haven; the Australian dollar fell sharply to be down four cents in the past couple of days trading.

According to various market reports — this one from the Financial Times Alphaville blog is compelling — the timetable for the dumb trading and its fallout went something like this.

About 2.30pm, as the markets were weakening after Europe had closed (the Standard & Poor’s 500 Index was off 4% at the time), someone entered a trade or trades that caused a sudden market slump.

It was as though an air hole had opened up on Wall Street; in the space of a few minutes, the Dow lost 6% in value to be down 998.50, or 9.2%. Someone had backed a truck full of lemmings up to a cliff, dropped the tailgate and the inevitable happened.

At one point the price of P&G, normally a safe blue chip in times of trouble, lost 37% of its value in minutes. The faulty P&G trading was responsible for 172 of the 998.50 points that the Dow lost, the biggest one-day point decline on an intraday basis in Dow Jones history.  Accenture, 3M, Sotheby’s and other stocks may have been impacted by similar problems.

Other markets were stunned by the fall in shares, gold jumped above $US1200 an ounce and ended at $US1197, its highest close so far this year, oil slumped more than $US5 a barrel to less than $US75 a barrel (it was trading at an 18-month high of more than $US88 a barrel on Monday, and closed about $US76.80 a barrel this morning. The stock sell-off sparked tumult in other markets.

The yield on 10-year Treasury notes fell 26 basis points(.26%) to 3.28%, but rebounded to end at $3.40%; while the yen soared by 5% against the dollar and by about 6% against the euro, which hit an eight-year low against that currency.

About 2.40pm it was over, the error or errors had been discovered and reversed, and the indices reset to their previous level showing still nasty falls of 3%-4%.

Even without the horrible error, it would have been another rotten day on the markets worldwide; Greece has approved a deep austerity package and €30 billion of cuts and tax rises, but there was another day of demos, thankfully non-fatal. Britain voted inconclusively, it seems, the Germans dithered and the European central bank left rates alone and seemingly ignored the wider fallout from Greece.

What made the fall even more terrifying was the the juxtaposition of the fall with comments from Angela Merkel, the German chancellor, who likened the current crisis to “a battle of the politicians against the markets” and attacked the role played by credit-rating agencies. She said: “I am determined to win.” That echoed remarks written, but not given by a senior member of the EC the day before he claimed the markets were taking on democracy. It was as though US markets were panicking in reaction to her comments.

And the Financial Times reported that in a letter issued on the eve of Friday’s eurozone summit in Brussels, Merkel and French President Nicolas Sarkozy demanded a review of how the agencies evaluate government debt and publicise their decisions, again echoing remarks by EC officials and by other government leaders earlier this week.

But as a columnist on the paper also pointed out, the same markets and rating agencies were not criticised or questioned when the euro was rising against the US dollar in 2005 to 2007, nor in the early years of the past decade, after Greece and other countries joined the eurozone on bodgied-up conversion rates highly favourable to them, thereby giving the euro more clout, to the political benefit of Germany and France.

So in the end, the Dow ended down 347.80 points, or 3.2%, at 10,520.32 (its biggest one-day fall since last September), the S&P 500 was off 37.75 points, or 3.24% and Nasdaq was down 82.65 points, or 3.44% at 2319.64. In Europe, France’s CAC 40 dropped 2.2%, Germany’s DAX was down 0.8% and London’s FTSE fell 1.5%. They had closed before the US trading glitch happened.

Our market fell 160 points, or 3.5% on the overnight futures. If that happens today and the market closes down more than 51 points, our market will have moved into correction territory, which is a 10% fall or more from its previous peak, which was 5024 on April 15.

The funny thing was that there was another flow of mildly positive data on the US economic recovery. But shocks such as that and the growing fear around the world could quite easily derail this rebound. China’s markets fell 4% yesterday and are now down about 17% this year. The bears are coming out of the woods, again.