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.