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Plunging oil prices pounded U.S. stock markets again on Friday, with the Dow Jones industrial average closing down nearly 400 points, or more than 2 percent, and the other indices taking similar beatings.

The Dow closed down 391.79 points, or 2.39 percent. The Standard & Poor's 500 index and Nasdaq Composite both also lost more than 2 percent of their value, with the former shedding 41.56 points, or 2.16 percent, and the latter closing down 126.59 points or 2.74 percent..

Earlier the Dow had been down nearly 537 points.

The Dow and S&P 500 have now fallen about 8 percent this year, while the Nasdaq is off more than 10 percent.

Oil prices, which provided the markets with a respite by rallying on Thursday, were again the catalyst for sellers on Friday, as fears grew that Iranian oil would add to the worldwide glut.

An International Atomic Energy Agency report verifying whether Iran has kept its promises under a nuclear deal reached last year with world powers is likely to be issued on Saturday, paving the way for sanctions relief and the widespread resumption of Iranian oil shipments, a diplomatic source told Reuters on Friday. Iranian and other officials had previously said they expected the report to come out on Friday.

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Bracing for the decision, traders drove the price of crude oil down past the symbolically important $30 a barrel level.

U.S. crude oil settled at $29.42 a barrel, down $1.78, or 5.71 percent. It was the first time in 12 years that it had finished trading under $30.

The steep slump in crude from over $100 a barrel in the summer of 2014 has eviscerated energy company profits and made it much harder for them to pay off their debts.

Still, some traders said the market was overselling on oil's woes, given the continued strength of the overall U.S. economy.

“The thing that worries me is this systemic lack of confidence. I still think the fundamentals are solid," Brad McMillan, chief investment officer at Commonwealth Financial, told CNBC. "The U.S. economy is not going into a recession anytime soon."

But evidence of a fourth-quarter slowdown, including weaker than expected U.S. retail sales for December , continued to mount. The Commerce Department reported Friday that sales declined 0.1 percent for the month, as warm weather hurt winter clothing sales and cheap gas undercut gas station revenue.

The National Retail Federation also reported disappointing holiday sales. Sales rose 3 percent in November and December to about $626.14 billion, it said, well below its forecast for a 3.7 percent gain. The shortfall came even as stores aggressively pushed discounts throughout the season.

And the Federal Reserve reported that U.S. industrial production, which includes manufacturing, mining and utilities, dropped in December for the third month in a row.

Investors also were spooked by expectations of disappointing earnings reports for companies hit by plunging oil prices, and indications that China will report its weakest full-year growth figure in 25 years on Tuesday.

Economists said the expansion of the Chinese economy was held back by sluggish domestic and external demand, weak investments, factory overcapacity and high property inventories, which exacerbated deflationary pressures in the economy.

The U.S. markets' down day continued a rout that began when Shanghai Composite Index finished down 3.6 percent, sliding to its lowest close since Dec. 8, 2014.

Stocks opened higher in Europe but quickly fell. Germany's DAX lost 3.1 percent, while France's CAC 40 dropped 2.9 percent. Britain's FTSE 100 dropped 2.4 percent.