U.S. stocks hit session lows on Friday afternoon, with the market being weighed down by a huge loss from insurance giant AIG and on fears of an economic recession, causing all indexes to fall more than 2 percent.

American International Group Inc., the world's largest insurer, declined the most in two weeks after posting the biggest loss in its 89-year history. The company missed Wall Street's earnings expectations, reporting a net loss of $5.29 billion on a larger-than-expected $11.12 billion write down. Excluding certain charges, AIG lost $1.31 a share, compared to mean analyst estimates from Thomson Financial of a 60 cent per share gain for the period.

AIG fell $3.35 or 6.5 percent to $46.90 a share.

The Dow Jones industrial average was down 268.82 points, or 2.1 percent, at 12,313.36 at 2:12pm in New York. The Standard & Poor's 500 Index was down 30.87 points, or 2.3 percent, at 1,336.81. The Nasdaq Composite Index was down 50.04 points, or 2.15 percent, at 2,281.53.