WALL Street stocks ended mainly lower overnight as the leading Dow Jones Industrial Average slumped to a two-year low with sentiment hit by the woes of US banks and finance firms.
Trading remained volatile as financial sector concerns persisted following the weekend collapse of California-based IndyMac bank and a sustained meltdown in the share prices of two giant mortgage-financing firms, Fannie Mae and Freddie Mac.
The Dow closed down 92.65 points (0.84 per cent) at 10,962.54. The blue-chip index clawed back some ground after having tumbled over 200 points, but finished below 11,000 points for the first time in two years.
The index has fallen 23 per cent into a bear market from an October high over 14,000 points.
The broad-market Standard & Poor's 500 index fell 13.39 points (1.09 per cent) to a close of 1214.91.
Technology shares fared better, as the Nasdaq composite index closed up 2.84 points (0.13 per ent) at 2215.71.
"Wall Street continues to be spooked by problems in the financial sector,'' Frederic Dickson, chief market strategist at DA Davidson, said in a briefing note.
Investors continue to be unsettled by the mortgage-related losses and credit problems sweeping the financial sector days after IndyMac bank was taken over by federal regulators.
Analysts say major banks are likely to reveal further losses in coming days as they report depressed second quarter earnings.
Such concerns have beaten down the share prices of Fannie Mae and Freddie Mac, which together guarantee around 40 per cent of all home loans in the United States.
Fannie Mae's shares slid 27 per cent to $US7.07 $7.22) while Freddie Mac saw its shares tumble 26 per cent to $US5.26 on fears of more losses from the housing slump, despite a rescue plan from the government.
Stocks recovered some ground in afternoon trading as US President George W Bush and Treasury Secretary Henry Paulson sought to soothe investors' concerns.
"Despite the challenges we face, our economy has demonstrated remarkable resilience,'' Mr Bush told reporters at the White House.
Mr Paulson, testifying before the Senate Banking Committee, urged lawmakers to give speedy approval to a plan to allow the US Treasury to buy equity in Fannie Mae and Freddie Mac to boost their capital along with other measures to raise confidence.
The Treasury chief spoke after Federal Reserve chairman Ben Bernanke sought to reassure the markets by saying the smooth functioning of the markets was a "top priority'' of the central bank.
Stocks took a hit in earlier trading after General Motors forecast "significant'' losses in the second quarter as sales of its large vehicles suffer from high gasoline costs.
The auto giant said asset sales and fresh borrowing would boost its total liquidity by $US15 billion over the next 18 months. Its stock ended up 4.9 per cent at $US9.84.
The day's economic news was also downbeat as the Commerce Department reported a moderation in retail sales, a main driver of US economic growth.
Sales moderated to a gain of just 0.1 per cent last month compared with a revised 0.8 per cent increase in May as consumers put a brake on shopping trips to car dealers and the nation's shopping malls.
Wal-Mart's shares closed down 0.1 per cent at $US56.24 while Target's stock finished 0.5 per cent lower at $US43.68.
Traders said a heavy fall in oil prices, which dropped to $US138 a barrel, had offered Wall Street some support.
Oil dipped amid fears of a US economic slowdown and as the Organization of the Petroleum Exporting Countries cut a demand forecast.
Shares slide back towards 5000
