Stocks tumbled on Wednesday as a steep quarterly loss at Merrill Lynch & Co. Inc. and executives' warnings about possible future problems deepened investors' concern about the credit crisis.
Technology shares added to the market's slide after disappointing earnings from Amazon.com Inc, chip maker Broadcom Corp and others, knocking the Nasdaq composite index more than 2 percent lower.
Merrill, the world's largest brokerage, reported a $2.3 billion loss, its first in almost six years, and eye-popping write-downs of $7.9 billion for bad bets on mortgages and leveraged loans. Standard & Poor's cut its credit rating on Merrill, helping to send the stock to its lowest level since October 2005.
In a conference call with analysts, Merrill's executives said further challenges could disrupt credit markets.
It sounds like there is some uncertainty: do they really have a grip on it? And the market doesn't like that, said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.
Also weighing on stocks was the National Association of Realtors' report on previously owned home sales, which fell in September to a record low.
The Dow Jones industrial average was down 167.78 points, or 1.23 percent, at 13,508.37. The Standard & Poor's 500 Index was down 24.37 points, or 1.60 percent, at 1,495.22. The Nasdaq Composite Index was down 69.22 points, or 2.47 percent, at 2,730.04.
Amazon's stock declined 16 percent to $84.38 and posted the biggest daily percentage drop in 15 months.
Broadcom said earnings would continue to be weighed down as it spends heavily on research and development. Its stock fell 18 percent to $34.10.
Merrill said write-downs on collateralized debt obligations followed errors of judgment in business and risk management.
The stock fell 5.7 percent to $63.27. The S&P financial index was down 2.9 percent.
(Additional reporting by Kristina Cooke)