Dow at 7-month low

NEW YORK (CNNMoney.com) -- Stocks slumped Wednesday, with the Dow closing at a 7-month low, as worries about the credit and mortgage market and higher oil prices hit investors hard ahead of what for many will be a long holiday weekend.

The Dow Jones industrial average (Charts) lost around 211 points or 1.6 percent according to early tallies. That set the Dow at its lowest point since April 17, when it ended the session at 12,773.04.

The S&P 500 (Charts) index lost 1.6 percent and the Nasdaq composite (Charts) lost 1.3 percent.

Treasury prices surged, lowering the corresponding yields, with the benchmark 10-year note falling below 4 percent during the session, a more than two-year low. Oil prices ended lower after hitting a record in electronic trading.

All financial markets are closed Thursday for the holiday and Friday's abbreviated session ends at 1:00 p.m. ET. Attendance is expected to be low and trading volume light on Friday.

Friday is the start of the critical holiday retail sales period. Next week's market will likely take its tone from the reports that come in over the weekend.

Here's a look at what was moving stocks near the close.

Stocks have been whipsawed lately as investors have muddled through the ongoing housing and credit market turmoil, eyed the weak dollar and fretted over oil prices near $100 a barrel. On Tuesday the Fed issued a sluggish 2008 economic outlook, confirming other recent signs of a slowdown.

Wednesday's index of leading economic indicators and consumer sentiment readings added to the lackluster growth outlook.

Additionally, the Mortgage Banker's Association reported a 3.6 percent drop in applications last week. Separately, 47 of the 50 states saw a drop in existing home sales in the third quarter, according to a National Association of Realtors report.

"Equity markets are reacting to the economic slowdown," said Michael Strauss, chief economist at Commonfund. "There is some worry about the consumer, about discretionary business spending and about the financial sectors of the economy."

He said that there may also be some worry that the Federal Reserve is behind in addressing these issues.

Treasury prices rallied, sending the corresponding yields lower, as investors sought safety in the comparably safer haven of bonds. The benchmark 10-year note fell below 4 percent for the first time in two years.

"There's a pretty strong flight-to-quality there," Strauss said. "There's a clear bet that the Fed has further to go, even if the Fed doesn't realize it."

Policy makers meeting on Dec. 11 are widely expected to cut the fed funds rate, a key short-term interest rate by a quarter-percentage point.

Among stock movers, Freddie Mac (Charts, Fortune 500) shares continued to slip after plunging nearly 27 percent Tuesday. The government-sponsored mortgage backer reported a steep quarterly loss Tuesday and a $1.2 billion writedown due to credit losses.

Fellow mortgage lenders Countrywide Financial (Charts, Fortune 500) and Washington Mutual (Charts, Fortune 500) slipped too, while Fannie Mae (Charts) bounced after sliding through the morning.

Big banks slumped, including Merrill Lynch (Charts, Fortune 500), Lehman Brothers (Charts, Fortune 500) and Morgan Stanley (Charts, Fortune 500).

Declines were broad based, with 26 out of 30 Dow components falling, led by AIG (Charts, Fortune 500), American Express (Charts, Fortune 500), General Motors (Charts, Fortune 500), Home Depot (Charts, Fortune 500) and Intel (Charts, Fortune 500).

Intel was one of many chips falling, including Advanced Micro Devices (Charts, Fortune 500) and Micron Technology (Charts, Fortune 500). Micron slumped for a second session after a Morgan Stanley analyst initiated coverage of the company Tuesday with an "underweight" rating, AP reported.

On the upside was GM (Charts, Fortune 500), which recovered from a steep morning selloff after reports said that GMAC, its struggling former finance unit, is taking steps to keep its mortgage unit alive.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost three to one on volume of nearly 1 billion shares. On the Nasdaq, decliners topped advancers by two to one as 1.35 billion shares changed hands.

In economic news, the October index of Leading Economic Indicators (LEI) fell 0.5 percent, after rising 0.1 percent in the previous month, suggesting that the economic slowdown could accelerate in the months ahead. Economists surveyed by Briefing.com thought LEI would fall 0.3 percent.

The November consumer sentiment index from the University of Michigan showed a rise to 76.1 from an initial reading of 75.0, but was down from last month's 80.9. Economists thought it would hold steady, on average.

The number of Americans filing new claims for unemployment last week fell by 11,000, as expected.

U.S. light crude oil for January delivery fell $1.03 to $97 a barrel on the New York Mercantile Exchange, after having hit a record high of $99.23 in electronic overnight trading.

Oil prices were volatile after the release of the weekly oil inventories report, which showed a surprise drop in crude supplies.

COMEX gold for December delivery rose $6.90 to $793.30 an ounce.

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