US stocks tumbled overnight as a probe of the home loan industry by New York's attorney general drew in the country's biggest mortgage finance companies and Washington Mutual Inc warned the housing downturn would extend well into next year.
Indexes extended their slide late in the session, pushing the Nasdaq down 2.7 percent, its worst daily percentage decline since the China-led sell-off of stocks on February 27.
Adding to the market's worries, the dollar fell to a record low against the euro after China signalled it may want to diversify its $US1 trillion-plus foreign reserves.
New York Attorney General Andrew Cuomo said his office was sending subpoenas to government-sponsored mortgage finance companies Fannie Mae and Freddie Mac as part of a probe of the home loan industry.
Washington Mutual Inc, the largest US 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. Washington Mutual was also a focus of Cuomo's investigation.
"It seems every time there's any significant new headline that relates to the mortgage mess, that gets people spooked and the selling really starts to accelerate,'' said Eric Kuby, chief investment officer of North Star Investment Management Corp. in Chicago.
The Dow Jones industrial average sank 360.92 points, or 2.64 percent, to end at 13,300.02. That drop matched its percentage decline of Oct. 19, the 20th anniversary of the 1987 stock market crash.
The Standard & Poor's 500 Index lost 44.65 points, or 2.94 percent, to 1,475.62 - the index's worst percentage drop since August 9, when French bank BNP Paribas spooked global markets by freezing three funds due to subprime fears. The Nasdaq Composite Index slid 76.42 points to 2,748.76.
Cisco and AIG off lateAfter the close, shares of Cisco Systems and American International Group Inc declined following their results.
Network equipment maker Cisco shares fell 9.2 percent to $US29.75 in extended trade on concerns about its outlook. On Nasdaq, Cisco fell almost 4 percent to close at $US32.75 ahead of the earnings report.
Insurer AIG's shares slipped 3.4 percent to $US56 after hours as it reported a profit that missed estimates. On the New York Stock Exchange, AIG had closed at $US58.00, down 6.5 percent before the earnings report.
WAMU'S wild ride down
In regular trading, Washington Mutual's stock dropped 17.3 percent to close at $US20.04 on the New York Stock Exchange. Earlier, the stock plummeted to $US19.72, its lowest level since July 2000.
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