NEW YORK - US stocks tumbled Friday after oil prices crossed 126 dollars and AIG, the world's largest insurer, reported a deeper than expected quarterly loss, raising alarms about the global credit crisis.

The Dow Jones Industrial Average fell 120.90 points (0.94 percent) to close 12,745.88 and the tech-dominant Nasdaq composite slipped 5.72 points (0.23 percent) to 2,445.52.

The broad-market Standard & Poor's 500 index dropped 9.40 points (0.67 percent) to 1,388.28, according to final closing figures.

It was the third losing session this week, as investors digested insurance giant American International Group's report after the market close Thursday of a first-quarter net loss of 7.81 billion dollars. AIG also said it needed more cash and was planning to raise 12.5 billion dollars.

"AIG's news has prompted downgrades from the credit rating agencies and has renewed concerns about the longevity of the credit market mess," said Briefing.com analyst Patrick O'Hare.

Analyst John Hall at Wachovia said "it's hard to look on AIG's first-quarter results favorably."

"The conditions that have led to substantial realized and unrealized losses have not dissipated, and don't appear on track to do so soon, in our view," he added.

AIG shares plummeted 8.79 percent to 40.28 dollars.

Crude oil rallied above 126 dollars for the first time in New York, stoking concerns that inflationary pressures will further curb consumer spending, the main engine of the currently sluggish US economy.

"We believe that oil prices need to settle back before the stock market resumes the rally which began back on March 17," said Frederic Dickson at DA Davidson & Co.

Shares in Citigroup, the US banking giant hit hard by the sub-prime mortgage crisis, skidded 2.76 percent to 23.63 after the company said it plans to slash assets by some 400 billion dollars, or 20 percent of its total, over the next two to three years.

Oil companies weakened: ExxonMobil dropped 1.23 percent to 88.82 and Chevron shed a scant 0.05 percent at 97.39.

On the economic front, the massive US trade deficit shrank more than expected in March, with exports holding at historic highs thanks to a weak dollar, and imports, particularly petroleum imports, sharply lower than in February.

Some analysts said the trade improvement may lead to an upward revision of first-quarter growth in gross domestic product (GDP). The initial government estimate was for a 0.6 percent annualised rate, the same sluggish pace as the final quarter of 2007.

Bonds firmed. The yield on the 10-year US Treasury bond dipped to 3.767 percent from 3.805 percent Thursday while that on the 30-year bond slipped to 4.524 percent from 4.564 percent. Bond yields and prices move in opposite directions.

In Europe, major indices closed sharply lower on record-high oil prices and Wall Street losses. In London, the FTSE 100 index closed down 1.05 percent, the Dax in Frankfurt fell 0.97 percent and the CAC 40 in Paris skidded 1.88 percent.

- AFP /ls