US stocks tumble

Wall Street abruptly ended an earnings-driven rally and closed sharply lower today after a steeper-than-expected decline in existing home sales and worries about the financial sector chilled the market's recent optimism.

The major indexes fell about 2%, including the Dow Jones industrial average, which lost more than 275 points.

The National Association of Realtors said sales resumed their decline in June after a slight rebound in May. Existing home sales dropped 2.6% in June, well beyond the 1% drop economists had forecast.

Investors punished shares of homebuilders and financial companies today because both sectors have struggled with the declining housing market.

Alan Lancz, director at investment research group LanczGlobal, said investors are concluding that, while financials had been oversold and were due for a rebound, problems remain with tight credit and souring mortgage debt.

"You have the rally and you almost get the hangover now where you say: 'You know, we're not out of the woods yet'," he said.

The Dow fell 283.10, or 2.43%, to 11,349.28. It was the biggest decline for the Dow since June 26.

The pullback erased the nearly 170 points added in the two prior sessions. Last week, the Dow gained nearly 400 points.

The Standard & Poor's 500 index fell 29.65, or 2.31%, to 1,252.54.

A jump in Amazon.com Inc shares helped contain some of the decline in the technology-heavy Nasdaq composite index, which fell 45.77, or 1.97%, to 2,280.11.

Stocks had risen in the prior two sessions as the price of oil declined. Oil is now down more than US$20 after just weeks ago hitting a record above $147 a barrel. A barrel of light, sweet crude rose $1.05 today to settle at $125.49 on the New York Mercantile Exchange.

Bond prices jumped today as some investors looked for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.02% from 4.12% from late yesterday.

The dollar was mixed against other major currencies, while gold prices rose.

Financial stocks declined again today after rising sharply in the past week from their recent lows.

Washington Mutual Inc fell 62 cents, or 13%, to 4.03 after falling 20% yesterday as concerns persisted about the company's mortgage portfolio. The nation's largest thrift this week posted a $3bn (€1.9bn) loss due to increases in its loss reserves to cover souring loans in its mortgage holdings.

Other financials lost ground. Citigroup Inc fell 2.06 dollars, or 9.8%, to 19.06, while Merrill Lynch & Co fell 4.77, or 14%, to 29.04. Wachovia Corp declined 1.96, or 11%, to 15.69.

Fannie Mae and Freddie Mac fell sharply after rallying earlier in the week on legislation speeding through Congress which would grant the Treasury Department power to extend the government-sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary.

The companies together back or own 5 trillion dollars (€3.1 trillion euro) in mortgages - nearly half the nation's total.

Fannie Mae fell 2.98, or 20%, to 12.02, while Freddie Mac fell 1.99, or 18%, to 8.81 dollars.

Adding to investors' pessimism, the Labour Department reported today that the number of people filing first-time claims for unemployment benefits surged past 400,000 last week as companies trimmed their workforces to cope with a slowing economy.

Investors also absorbed a mix of earnings reports from names like Ford Motor Co, which reported a big loss, and Dow Chemical Co, which said higher costs for raw materials sent earnings down sharply.

But drug makers Bristol-Myers Squibb Co and Eli Lilly & Co both reported higher earnings as the weak dollar boosted foreign sales, and Amazon.com Inc turned in a solid report which beat expectations.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.65 billion shares compared with 1.72 billion shares traded yesterday.

The Russell 2000 index of smaller companies fell 16.80, or 2.34%, to 702.39.