Stocks get pummeled

NEW YORK (CNNMoney.com) -- Stock declines accelerated Thursday afternoon as worries about the global credit market sparked a broad selloff in equities, following a three-session rally.

Bond prices rose as the stock selloff recharged with jittery investors dumping stocks in favor of the so-called safer haven of Treasurys.

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The Dow Jones industrial average (down 263.22 to 13,394.64, Charts) tumbled roughly 330 points in the late afternoon, a loss of 2.4 percent. The blue-chip barometer had slumped roughly the same amount in the morning, before paring some losses shortly after the New York Stock Exchange instituted trading curbs, Reuters reported.

The broader S&P 500 (down 30.91 to 1,466.58, Charts) index dropped 2.6 percent. The tech-fueled Nasdaq Composite (down 42.48 to 2,570.50, Charts) index fell nearly 2 percent, having given up a midmorning attempt to stabilize.

Fears about the subprime mortgage market and the credit crisis resurfaced Thursday after BNP Paribas, France's biggest bank, said it was halting withdrawals from three of its top funds because it can't value their assets in the current market.

Additionally, AIG, one of the world's largest insurance companies, warned Thursday morning that it is seeing mortgage delinquencies spreading from subprime to prime. The company also reported higher-than-expected quarterly earnings late Wednesday. AIG (down $1.99 to $64.49, Charts, Fortune 500) lost 2.5 percent, recovering from a 5 percent plunge at the open.

The news sent stocks tanking, however, equities were already vulnerable to a decline, following a robust three-day market surge earlier this week, that followed a big selloff.

"We had a market that was deeply oversold, had an enormous rebound, and then was vulnerable to a setback," said Steven Goldman, market strategist at Weeden & Co. "Today's news is acting as a catalyst for that setback."

Seeking to calm credit worries, the European Central Bank (ECB) added cash to money markets. However, the move seemed to have the opposite effect, adding to worries rather than easing them.

The ECB loaned at least $130 billion in overnight funds to banks at a 4 percent rate. The Federal Reserve added $24 billion to temporary U.S. reserves in its regular overnight operations, an amount that some traders said was larger than usual, but not comparable to an infusion of money along the lines of the ECB, Reuters said.

Stocks have seesawed dramatically over the last few months on worries about the tightening of credit after a period of widespread liquidity. The continued fallout from the subprime mortgage market - loans made to consumers with less than ideal credit - has been an ongoing worry on Wall Street this year, amid the slumping housing market.

Although "the credit issue is not going away," Goldman said, the stock market is probably in a better place to absorb it now, since many of the indexes are well off their 2007 highs, in particular the S&P 500 and the Russell 2000 small-cap index.

The next month or so is bound to be choppy, he said, as is typical in August, but stocks could stabilize and recharge for the classic fourth-quarter advance.

A variety of U.S. financial stocks sagged Thursday, including Citigroup (down $1.89 to $47.60, Charts, Fortune 500) and JP Morgan (down $1.91 to $44.60, Charts, Fortune 500).

Goldman Sachs (down $11.09 to $182.21, Charts, Fortune 500) lost 3 percent on reports that two of its computer-driven hedge funds have sold some positions after suffering big losses of late.

In global trade, European stocks tumbled, while Asian markets finished higher.

Treasury prices surged in a classic "flight-to-quality" move, sending the yield on the benchmark 10-year note down to 4.79 percent from 4.88 percent late Wednesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar surged versus the euro and slumped versus the yen as traders struggled to reposition themselves amid the credit squeeze concerns.

Oil prices fell, with U.S. light crude for September delivery slipping 56 cents to $71.59 a barrel on the New York Mercantile Exchange.

Commodity prices slumped across the board, with gold, silver, platinum and copper all losing ground. Metal and mining stocks slipped in tandem.

In corporate news, Dow component Home Depot (down $1.78 to $36.02, Charts, Fortune 500) said Thursday it was in talks with private equity buyers about lowering the sale price of its HD Supply unit from $10.3 billion and that it was reducing a previously announced tender offer, sending its shares 5 percent lower on the New York Stock Exchange.

A variety of retailers reported less-than-stellar July sales.

Among the standouts, teen retailers Pacific Sunwear of California (down $2.00 to $15.23, Charts) and American Eagle Outfitters (down $1.33 to $22.51, Charts) both reported a drop in sales at stores open a year or more, a retail metric known as same-store sales.

Wal-Mart (down $1.87 to $46.55, Charts, Fortune 500) and Target (down $2.36 to $62.85, Charts, Fortune 500) both reported better-than-expected same-store sales. However, both stocks declined regardless.

In other news, Rupert Murdoch's News Corp. (down $0.24 to $22.56, Charts, Fortune 500) reported a rise in quarterly profit after the market close Wednesday, boosted by ad sales and its cable channels.

Stock declines covered a variety of sectors, with 25 out of 30 Dow components sliding. Consumer names such as Procter & Gamble (up $0.69 to $65.85, Charts, Fortune 500), McDonald's (up $0.37 to $50.66, Charts, Fortune 500) and Coca-Cola (up $0.48 to $56.34, Charts, Fortune 500) were among the few Dow gainers.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than 3 to 1 on volume of 2.4 billion shares. On the Nasdaq, decliners topped advancers by 2 to 1 as nearly 3.2 billion shares changed hands.

On the economic front, jobless claims climbed more than expected last week, the Labor Department reported, while the four-week moving average inched higher.