Stocks get pummeled again

NEW YORK (CNNMoney.com) -- Stocks tanked Thursday morning, extending the recent bloodletting, as investors took lender Countrywide Financial's latest woes as evidence of bigger problems for the credit and mortgage markets.

The Dow Jones industrial average (down 125.76 to 12,735.71, Charts) fell 113 points, or 0.8 percent, 90 minutes into the session, after ending the previous session at its lowest point in almost four months. The broader S&P 500 (down 13.63 to 1,393.07, Charts) index lost 0.7 percent and the tech-fueled Nasdaq Composite (down 21.81 to 2,437.02, Charts) index fell 0.7 percent.

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The Dow and Nasdaq have fallen for five sessions in a row, and the S&P 500 has slipped for four of the last five sessions, as investors have retreated from stocks on worries about tightening credit and the fallout from the subprime mortgage market.

"Credit worries are gripping the market," said Georges Yared, chief investment strategist at Yared Investment Research. "This is an environment where it's shoot now, ask questions later."

Credit worries were sustained Thursday after Countrywide Financial (down $3.12 to $18.17, Charts, Fortune 500), the largest U.S. mortgage lender, said it was forced to tap an $11.5 billion line of credit to offset its liquidity crunch.

Countrywide's increasing troubles over the last few days have exacerbated fears about a global credit crisis.

"What everyone's waiting for now is to see what the Fed will do at the next meeting," Yared said. "Whether they drop 25 basis points or even 50 to really soothe the markets."

After holding short-term interest rates steady at 5.25 percent for more than a year, many investors and other Wall Street pros are looking to the Federal Reserve to cut interest rates at the upcoming policy meeting Sept. 18.

Some analysts have called for the central bank to step in earlier, ahead of the meeting, as it did to soothe markets in 2001, in the aftermath of the events of 9/11.

To that effect, the Fed has been adding additional temporary reserves to the banking system, as well as reminding market participants of the normal reserves it puts in place. The Fed added $17 billion Thursday.

However, the central bankers have sought to discourage bets that they will act to cut rates before the next meeting.

St. Louis Fed president William Poole said late Wednesday that it would not be desirable for the Fed to act before the next meeting. Poole, a voting member of the Fed's policy-setting committee, said that the turmoil in the markets has not spread to the economy.

On Thursday, Treasury Secretary Henry Paulson said that the current struggle in financial markets will slow U.S. growth, but not send the economy into a recession.

Treasury prices rose, lowering the benchmark 10-year note yield to 4.66 percent from 4.71 percent late Wednesday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar was flat versus the euro and fell versus the yen.

Since peaking in mid-July, the Dow has lost over 8 percent and the S&P 500 has lost more than 9 percent, as of Wednesday's close. The Nasdaq is more than 9.5 percent off its 2007 high from mid July.

As of Thursday morning, the S&P 500 has lost over 10 percent since its high, the formal definition of a market correction. Yared said that the major gauges probably have another 3 percent to 5 percent selloff looming before a significant bounceback is staged.

Declines covered a variety of sectors, with 20 out of 30 Dow components falling, led by Alcoa (down $2.11 to $31.59, Charts, Fortune 500), Boeing (down $2.92 to $92.59, Charts, Fortune 500), United Technologies (down $1.49 to $70.14, Charts, Fortune 500), Caterpillar (down $1.75 to $73.20, Charts, Fortune 500) and Hewlett-Packard (down $0.88 to $45.27, Charts, Fortune 500).

Within the broader market, gold, silver, steel, homebuilders and financials were among the hardest hit sectors.

Also hurting Thursday's trading, reports showing that July housing starts and building permits have fallen to a decade low.

U.S. light crude oil for September delivery fell $1.84 to $71.49 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $14.90 to $664.80 an ounce.