Steep selloff on Wall Street

NEW YORK (CNNMoney.com) -- Stocks slumped Friday morning as investors eyed American Express's profit warning and talk that Merrill Lynch may have to writedown billions more from credit market woes.

The Dow Jones industrial average (INDU) lost around 1.4 percent in the early going. The broader S&P 500 (INX) index and the Nasdaq (COMPX) composite both gave up around 1 percent.

American Express (AXP, Fortune 500) said late Thursday that it expects lower profit through 2008 because of slower spending and missed credit card payments. Shares of AmEx, a Dow component, slumped 9 percent Friday morning in active trading.

Merrill Lynch (MER, Fortune 500) may have to writedown $15 billion in bad mortgage bets when it posts results next week, The New York Times reported. Analysts currently expect the financial behemoth to take a $12 billion writedown. The company is also apparently seeking to raise $4 billion in capital. Merrill shares rose modestly.

Next week brings earnings from Merrill and four other big banks, including Citigroup (C, Fortune 500), and results are expected to be pretty dismal amid the continued fallout from the credit and mortgage market crises. (Full story).

Bank of America (BAC, Fortune 500) said Friday that it was buying Countrywide Financial (CFC, Fortune 500) for $4 billion in stock, rescuing one of the hardest-hit lenders in the housing market fallout. Countrywide shares slumped 10 percent after rising more than 50 percent Thursday on market rumors about the deal. (Full story).

Stocks pulled out a last-hour rally Thursday after reports about a potential Bank of America-Countrywide deal first surfaced, in a rare up day in an otherwise miserable start to 2008.

Fears that the economy could be sliding into a recession have dragged on stocks so far this year. On Thursday, Federal Reserve Chairman Ben Bernanke said that the central bank does not think the economy is in a recession and that the Fed is willing to keep cutting rates to keep growth from slowing too rapidly.

In other news, the government said Friday that the November trade gap swelled to its highest level in 14 months, due to record oil imports.

Treasury prices rose, lowering the yield on the 10-year note to 3.84 percent from 3.88 percent late Thursday. Treasury prices and yields move in opposite directions.

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

U.S. light crude oil for February delivery fell 61 cents to $93.10 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery slipped $1.30 to $892.30 an ounce.