Mortgage mess on Wall Street

NEW YORK (CNNMoney.com) -- Stocks sold off early Friday, continuing steep losses for the week, as Wachovia became the latest bank hit by fallout in the mortgage sector.

The 30-share Dow Jones industrial average (Charts) and the broader S&P 500 index (Charts) each fell about 1 percent, while the tech-fueled Nasdaq (Charts) slid 1.7 percent.

Wachovia (Charts, Fortune 500), the nation's fourth-largest bank, said the complex debt instruments it had in its portfolio declined in value by an estimated $1.1 billion before taxes in October, leading to $600 million loan-loss charge for the current quarter. The bank had reported $1.3 billion in pre-tax losses in the third quarter tied to pools of debt backed by home loans.

The additional losses from Wachovia come after Citigroup (Charts, Fortune 500) said last week it expects to write down a further $8 billion to $11 billion in the fourth quarter due to credit- and mortgage-related problems. Citigroup and warnings of more write downs from other banks caused the Dow to lose 362 points last week.

This Wednesday, the Dow posted one of its biggest single-day declines, falling 361 points on further credit market fears.

In recent months, banks and other financial institutions have taken big losses on mortgage-backed securities, which package individual home loans and sell them as an investment.

Those investments soured when people started defaulting on loans because of the decline in the real estate market, which ended their hopes of refinancing on the back of rising home values.

Adding to investor woes was a weak growth forecast from the European Union, which said growth in the area of 27 nations is expected to slow to 2.4 percent next year and in 2009, down from 2.9 percent this year. The EU attributed weaker growth to problems stemming from the subprime mess in the U.S. and the rise in oil prices.

The University of Michigan report on consumer sentiment came in well below estimates, but did little to move markets.

A bit of positive news: The U.S. trade deficit fell to the lowest level in 28 months as a falling dollar helped boost exports.

Among stocks in the news early Friday, Merck (Charts, Fortune 500) announced it will pay $4.85 billion to resolve most of the the 27,000 claims involving its blockbuster pain medication Vioxx.

Disney (Charts, Fortune 500) reported earnings that beat expectations on sales that were roughly in line with analysts' estimates.

Clearwire (Charts) and Sprint Nextel (Charts, Fortune 500) said they ended an earlier agreement they had to build a high-speed wireless network.

Oil prices eased in electronic trading. Light, sweet crude for December delivery slipped 6 cents to $95.40 a barrel.

The dollar fell to another record low versus the euro. Treasury prices rose, with the yield on the benchmark 10-year note falling to 4.25 percent. Bond prices and yields move in opposite directions.

Major markets in Asia finished lower on mounting credit fears. In Europe, stocks were slightly lower in midday trade.

Market breadth was negative. Losers topped winners by 6 to 1 on the New York Stock Exchange as 281 million shares traded hands. Decliners beat advancers by 4 to 1 on volume of 529 million shares.