(AP)
Updated: 2007-08-10 03:54

NEW YORK - Wall Street fell sharply again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials fell more than 270 points.

The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone — institutions, investors, companies, individuals — can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spilling into the general economy.

"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."

Retailers released July sales figures Thursday that were overall disappointing.

Bonds rose sharply as investors again sought the relative safety of Treasurys, pushing down the yield on the benchmark 10-year note to 4.79 percent from 4.89 percent late Wednesday.

The Fed didn't soften its stance on inflation after leaving short-term interest rates unchanged Tuesday. However, the renewed credit market concerns spurred bond traders who bet on its next move to predict early in the session that the Fed will cut rates at its meeting next month. Before Thursday, traders had bet on a 1 in 4 chance of such a cut.

In late trading, the Dow fell 278.66, or 2.04 percent, to 13,379.20 after being down more than 300.

Thursday's pullback continued an erratic pattern of triple-digit moves in the Dow since the index closed at a record 14,001.41 on July 19. Ten of the 14 ensuing sessions have ended in a triple-digit gain or loss. Gains have been evaporating at the first mention of trouble in housing, subprime lending or the credit markets.

The Dow is more than 4 percent below its record close. Some experts have been calling for a textbook correction — a pullback of at least 10 percent. At its lowest close since the market's high, Friday's finish of 13,181.91, the Dow was 5.85 percent below the record.

Also Thursday, the broader Standard & Poor's 500 index fell 31.52, or 2.10 percent, to 1,465.97. The Nasdaq composite index fell 44.86, or 1.72 percent, to 2,568.12.

The pullback came after BNP Paribas Investment Partners said it was suspending three funds together worth about $3.79 billion and wouldn't make investor redemptions until it could determine net asset values.

The funds invest in part in subprime mortgages through a process known as securitization. Investment banks bundle together mortgages — including those from subprime borrowers — and sell them off to investors such as hedge funds, mutual funds and other institutional investors. Buyers of such securities are seeking the steady flow of income from homeowners making their mortgage payments.

Shares of financial companies, which investors have fled recently amid lending concerns, took another beating Thursday. Citigroup Inc. fell 4 percent, as did fellow Dow component JPMorgan Chase & Co.

In another sign of credit market trouble, Home Depot Inc. warned that the sale of its wholesale business might bring in less than expected. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock, said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $1.66, or 4.4 percent, to $36.14, and was the worst performer of the 30 Dow components.

But American International Group Inc., one of the world's largest insurers, on Thursday reassured investors that it remains comfortable with its exposure to the subprime lending market as an investor, lender and mortgage insurer. AIG, which reported a 34 percent jump in second-quarter profit late Wednesday, said it has enough cash and liquidity and "does not need to liquidate any investment securities in a chaotic market."

The dollar was mixed against other major currencies, while gold prices fell. Light, sweet crude fell 56 cents to $71.59 per barrel on the New York Mercantile Exchange.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 2.18 billion shares.

The Russell 2000 index of smaller companies fell 10.47, or 1.32 percent, to 785.19.

The Chicago Board Options Exchange's volatility index, often called the "fear index," rose early Thursday to its highest level since April 2003.

European stocks plunged. Britain's FTSE 100 lost 1.92 percent, Germany's DAX index fell 2.00 percent, and France's CAC-40 fell 2.17 percent after being down more than 3 percent.

Japan's Nikkei stock average rose 0.83 percent. Hong Kong's Hang Seng index fell 0.43 percent.