Market sinks on resurgent credit fears

Stocks fell on Wednesday as fear of more credit market turmoil raised worry about prospects for the economy and profits.

New York Attorney General Andrew Cuomo said his office was sending subpoenas to government-sponsored mortgage financiers Fannie Mae and Freddie Mac as part of a probe of the home loan industry.

Earlier, Washington Mutual Inc, the largest U.S. savings and loan company, said the housing slump will persist through 2008, loan losses will rise and mortgage lending will fall to an eight-year low. The stock fell to its lowest since July 2000.

Shares of financial services companies slid as investors worried about fallout from persistent problems in the market for risky subprime mortgage debt.

It's just more of the 'where does this financial stuff end?' People are probing into the loan portfolios and practices of Fannie Mae and Freddie Mac. There's more talk about brokers having to take a big write-down, said Mike Binger, portfolio manager at Thrivent Financial in Minneapolis.

The Dow Jones industrial average was down 217.69 points, or 1.60 percent, at 13,443.25. The Standard & Poor's 500 Index was down 27.83 points, or 1.83 percent, at 1,492.44. The Nasdaq Composite Index was down 46.83 points, or 1.66 percent, at 2,778.35.

Shares of Fannie Mae were down 10 percent at $49.86 while Freddie Mac was down 6.9 percent at $46.00.

Investment bank Morgan Stanley dropped 5 percent to $51.77, while Washington Mutual slid 15.8 percent to $20.40 and hit a low of $19.72 earlier. The S&P financial index lost 4 percent.

General Motors Corp posted its biggest-ever quarterly loss, making the stock of the largest U.S. automaker among the Dow's top decliners. GM shares fell 4.8 percent to $34.45.