Stocks went into another free-fall, suffering their biggest decline so far this year, as worries about the economy and subprime crisis overshadowed efforts by Washington to prevent a possible recession.
The Dow Jones Industrial Average fell 306.95 points, or 2.46%, its biggest drop so far this year. The average is now down more than 1,000 points, or 8.3%, this year.
The Standard & Poor's 500 index skidded 39.95 points, or 2.9%, also it's biggest decline so far this year. The index is now down 9.2% for the year.
The Nasdaq Composite Index fell 47.69 points, or 2%, its lowest close in nearly a year. The index is down 12% so far this year.
Federal Reserve Chairman Ben Bernanke told Congress that he favored a short-term economic stimulus plan and repeated that the central bank stood ready to cut interest rates further. President Bush also came out publicly for a stimulus plan and talks began with Congress about what would be in the package.
But the market continued to sink lower in the afternoon as many investors thought that it may be too late for Washington to prevent a recession.
"It smacks to me that they're looking to save the financial institutions," said Chris Mayer, managing editor at Capital & Crisis. "They talk a lot about the consumer, but if the banks weren't losing billions and billions of dollars I wonder if they'd be so eager to put this stimulus package through."
The Bernanke speech was immediately preceded by the Philadelphia Federal Reserve data on factory activity showing a six-year low, news that sent stocks lower after a positive start. An active day for the markets also saw economic figuresindicate solid employment numbers but continued weakness in housing starts.
Financials got hammered as yet another major institution reported massive losses due to bad bets on subprime mortgages.
Merrill Lynch shares dropped their most in six years after it reported a fourth-quarter net loss of $9.8 billion, or $12.01 a share, which eclipses the company's $2.3 billion loss in the previous quarter. For the year, the company's subprime mortgage-related losses totaled nearly $23 billion.
It all added up to intensified fears that if the US economy is not already in a recession, one certainly seems to be looming.
Bernanke acknowledged the myriad challenges the economy is facing yet said the Fed is not forecasting a recession.
"The U.S. economy remains extraordinarily resilient," he said in answering questions after testifying before the House Budget Committee.
That position, though, was losing traction quickly on Wall Street.
"Cutting rates is an admission on the Fed's part that the economy is really slowing," said Larry Edelson, senior analyst for Money and Markets. "If you park apart the GDP numbers and the government's phony CPI figures, we already have a real contraction in growth that's been going on for probably six months."
Insurers Lag, Tech Gains
Bond insurers were the big losers for the day. Shares tumbled at MBIA, American International Group and Ambac as worries continued over subprime writeoffs and threatened ratings downgrades.
Marsh & McClennan shares gained significantly after CNBC reported that insurance broker Willis Group Holdings has approached the insurance broker with a view to starting talks about a possible takeover.
Lehman Brothers also dropped sharply after it announced it would stop wholesale mortgage lending, which will result in a cut of 1,300 jobs and a charge of $40 million.
Bargain hunters found some safety in some beaten-down tech stocks, including Appleand Dell .
General Motors led a small class of gainers among Dow components, while Merck was the biggest loser among bluechips.
Sporting goods was among the top-performing sectors of the market, with shares at Callaway posting big gains a day after the company said it expects 2007 sales to rise 10 percent to a record $1.125 billion.
Jewelry stores also did well, while nonmetallic mineral mining joined title insurers as the top laggards.
Market breadth was negative, with decliners trouncing advancers about 3 to 1.
It wasn't just large companies that were taking a hit. The Russell 2000 index , which tracks small-cap stocks, fell to bear market levels, 20 percent off its high closing in July.