Shares were sold after Federal Reserve chairman Ben Bernanke’s endorsement of the need for a fiscal stimulus package failed to convince investors the US economy could avoid a sharp slowdown.
Bond insurers plummeted after Moody’s put Ambac Financial on review for possible downgrade, adding to worries about the credit market linchpin. Meanwhile Merrill Lynch fell sharply after the brokerage slumped to a $9.8bn quarterly loss.
At midday the S&P 500 was down 1.5 per cent at 1,351.99, its lowest level in 15 months. The Nasdaq Composite fell 0.8 percent to 2,375.12 and the the Dow Jones Industrial Average gave up 1.2 per cent to 12,321.63.
Stocks pared early gains after the Philadelphia Federal Reserve’s regional manufacturing index contracted sharply.
The report added to concerns that US manufacturers are experiencing a marked slowdown, coming soon after the Institute for Supply Management’s manufacturing index also weakened decisively.