Stocks tumbled on Thursday, with the Dow and S&P down nearly 3 percent, after a French bank froze three funds that invested in U.S. subprime mortgages, prompting central banks to take steps to calm investors.

Evidence the U.S. mortgage market crisis was having a global impact and spreading to other markets hammered financial stocks.

Goldman Sachs Group dropped nearly 6 percent after a second fund managed by the investment bank was under pressure to sell assets after falling in value. The S&P financial index fell 3.8 percent and the sector was one of the biggest drags on the S&P 500.

The Fed has said the subprime issue is contained, said Hugh Moore, partner with research-based advisory firm Guerite Advisors in Greenville, South Carolina, referring to the Federal Reserve. It's spread not just outside the industry, but outside the U.S. That really has people spooked.

The Dow Jones industrial average sank 387.18 points, or 2.83 percent, to end at 13,270.68. The Standard & Poor's 500 Index slid 44.40 points, or 2.96 percent, to 1,453.09. It was the worst percentage drop for both indexes since the February 27 sell-off.

The Nasdaq Composite Index fell 56.49 points, or 2.16 percent, to close at 2,556.49.


After the closing bell, a source told Reuters that hedge fund company Man Group Plc will delay the initial public offering of a new hedge fund because market conditions have deteriorated. The IPO, planned for September, was to be the first hedge fund listed on the New York Stock Exchange.

General Electric Co. shares suffered their worst percentage decline in 18 months, while the stock of Wal-Mart Stores Inc. had its biggest fall in four years. GE fell 3.8 percent to $38.94 and Wal-Mart shed 4.1 percent to $46.45, both on the New York Stock Exchange. Both are Dow components.

The European Central Bank injected a record $130 billion into the banking system to help calm jittery markets after BNP Paribas barred investors from redeeming 1.6 billion euros ($2.2 billion) worth of funds, blaming the conditions in the subprime mortgage market.

U.S. President George W. Bush said advisers told him there is enough liquidity in the system to let markets make necessary adjustments. The Bank of Canada also said it injected a larger-than-normal amount of funds to support the stability of the Canadian financial system.

Trading was extremely volatile, with the Nasdaq briefly turning positive. All three indexes added sharply to their losses in the last few minutes of trading.

Trading was heavy on the NYSE, with about 2.79 billion shares changing hands, well above last year's estimated daily average of 1.84 billion, while on the Nasdaq, about 3.56 billion shares traded, above last year's daily average of 2.02 billion.

Among financial stocks, Goldman dropped 5.7 percent to $182.25 on the New York Stock Exchange. The Wall Street Journal had already reported on Thursday that the bank's internal hedge fund known as Global Alpha has lost about 16 percent for the year, citing people briefed on the matter. The fund has been the subject of persistent speculation for a couple of days.

Shares of Bear Stearns Cos. lost 5.8 percent to $114.05. Navigator Capital on Thursday filed a lawsuit against a Bear Stearns hedge fund, claiming Bear Stearns had neglected to manage the fund properly before the collapse.

A spate of disappointing monthly sales reports from major apparel retailers added to the negative tone. The worst decliner was the stock of women's clothing chain New York & Co. Inc., which cut its second-quarter earnings outlook. The stock fell 16.7 percent to $7.67 on the NYSE.

Home improvement chain Home Depot said it was in talks that may change terms of a previously agreed buyout of its supply division. Its stock, a Dow component, fell 5.3 percent to $35.79 on the NYSE.

Before Thursday's losses, Wall Street had been on a three-day winning streak fueled in part by the Federal Reserve's statement on Tuesday that the economy was likely to keep growing despite turmoil in credit markets.

The benchmark 10-year U.S. Treasury note's yield dropped to 4.78 percent from 4.86 percent late on Wednesday as prices of government debt jumped.

Decliners outnumbered advancers on the NYSE by a ratio of nearly 4 to 1, while on the Nasdaq, two stocks fell for every one that rose.