It's Official: Markets Are In Correction

A late-day selloff pushed the major stock averages down 10% from their highs, meaning the market is now officially in a correction.

The sharp decline was triggered by more worries about the credit crunch and possibility of a U.S. recession.

Fueling that concern was news that the Federal Home Loan Bank had $50 billion in loans to Countrywide Financial, the troubled mortgage lender. Sen. Charles Schumer (D-NY) wrote a letter to the FHLB saying it should examine the risks of having that much exposure to Countrywide.

Investors scurried into the relative safety of U.S. government bonds as the appetite for riskier assets diminished. The yield on the 10-year Treasury, which moves in the opposite direction of the price, sank to 3.81%, a nearly four-year low.

"The big concern is the credit markets and real estate," said Randy Carver of Carver Financial Services. "We feel there's going to be quite a bit of volatility over the next three, four months. Quite frankly, it's a normal part of the market progression."

Leading the decline were financial services companies, including Citigroup , the largest U.S. bank, which tumbled below $30 for the first time since October 2002 heading into the last hour of the trading session. CNBC reported in the morning that Citigroup in considering another round of layoffs,with some estimates that as many as 45,000 jobs would be cut.

Citi was the top drag on the Dow and the S&P 500, followed by Exxon Mobil , whose stock declined 1.6 percent as crude oil prices retreated.

Consumer-oriented plays, including retailers and home builders also took a beating. The S&P financial index was down 3.3 percent, while the S&P retail index declined nearly 2 percent.

The sell-off in financials overshadowed optimism early in the session fed by reports that the holiday shopping season's unofficial kickoff on Friday was stronger than many expected. But retail stocks tanked after a report showed that actual sales were down 3.5% from a year earlier.

"The big thing is finance is down. It's more worries about the financial crisis, and what the expectations of these big banks are," said Giri Cherukuri, head trader at OakBrook
Investments LLC in Lisle, Illinois.

Home financing providers Freddie Mac and Fannie Mae fell sharply after UBS downgraded the mortgage finance companies, citing increased mortgage losses and erosion of other home-loan

The sell-off in shares of financial services firms coincided with a report from Goldman Sachs saying that HSBC , Europe's biggest bank, would likely need a further $12 billion in provisions for its U.S. subprime mortgages and home equity loans.

HSBC on Monday stepped in with funding of up to $35 billion to support its two structured investment vehicles, or SIVs. SIVs have been battered by the recent subprime-related credit

There was also some "flight-to-safety" trading, he said. "People are trying to figure out about the slowdown, and more and more people are thinking more seriously about how severe
the economic slowdown is going to be."

Market Movers

Despite the overall weakness in the Nasdaq, major tech companies posted solid gains. Shares rose at Google , Apple, Research in Motion and Amazon.

Retailers fell, though, after the initial Black Friday exuberance, reflecting investors' concerns that the weekend shopping wouldn't sustain through the holiday season.

In corporate news, Mastercard gained after an upgrade by investment bank Calyon, as did Boeing Airlines on an upgrade from Wachovia Capital Markets.

Dutch Philips Electronics said it reached a dealto buy light maker Genlyte for $2.7 billion, to reinforce its presence in the North American lighting products market. The deal sent Genlyte shares up sharply.

Newell Rubbermaid shares tumbled after it cut its fourth-quarter and full-year sales forecasts, citing softer demand for office products and subsequent inventory reductions at key retailers.

But continued weakness in the housing market continued to hit builders. Shares slumped at Toll Brothers , Pulte, Lennar, Hovnanian, KB Home and others.

-- Reuters contributed to this report.