Credit fears send stocks tumbling, with the industrials posting its biggest one-day point loss since February; bond prices surge in 'flight-to-quality' move.
The Dow Jones industrial average (down 387.18 to 13,270.68, Charts) tumbled 387 points, or 2.8 percent, its biggest one-day point and percentage loss since Feb. 27, when it plunged 416 points on worries about a global growth slowdown.
The blue-chip barometer had opened weakly on Thursday, briefly pared some losses in the morning after the New York Stock Exchange instituted trading curbs, but then resumed its downward path.
The broader S&P 500 (down 44.40 to 1,453.09, Charts) index dropped almost 3 percent. The tech-fueled Nasdaq Composite (down 56.49 to 2,556.49, Charts) index fell nearly 2.2 percent.
Two Goldman funds hit the skids
Fears about the subprime mortgage market and the credit crisis resurfaced Thursday after BNP Paribas, France's biggest bank, said it was halting withdrawals from three of its top funds because it can't value their assets in the current market.
Additionally, AIG, one of the world's largest insurance companies, warned Thursday morning that it is seeing mortgage delinquencies spreading from subprime to prime. The company also reported higher-than-expected quarterly earnings late Wednesday. AIG (down $2.18 to $64.30, Charts, Fortune 500) lost 2.5 percent, recovering from a 5 percent plunge at the open.
The news sent stocks tanking, however, equities were already vulnerable to a decline, following a robust three-day market surge earlier this week, that followed a big selloff.
"We had a market that was deeply oversold, had an enormous rebound, and then was vulnerable to a setback," said Steven Goldman, market strategist at Weeden & Co. "Today's news is acting as a catalyst for that setback."
Seeking to calm credit worries, the European Central Bank (ECB) added cash to money markets. However, the move seemed to have the opposite effect, increasing investor concerns rather than easing them.
The ECB loaned at least $130 billion in overnight funds to banks at a 4 percent rate. The Federal Reserve added $24 billion to temporary U.S. reserves in its regular overnight operations, an amount that some traders said was larger than usual, but not comparable to an infusion of money along the lines of the ECB, Reuters said.
Stocks have seesawed dramatically over the last few months on worries about the tightening of credit after a period of widespread liquidity. The continued fallout from the subprime mortgage market - loans made to consumers with less than ideal credit - has been an ongoing worry on Wall Street this year, amid the slumping housing market.
