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NEW YORK: US stocks took a drubbing for a second day on Tuesday as a surge in inflation and a fresh decline in housing heightened economic fears that put more pressure on the troubled banking sector.
The Dow Jones Industrial Average tumbled 130.84 points (1.14 percent) to close at 11,348.55 after a 1.5 percent slide for the blue-chip index on Monday.
The Nasdaq composite shed 32.62 points (1.35 percent) to 2,384.36 and the Standard & Poor's 500 index retreated 11.92 points (0.93 percent) to 1,266.68.
Other global markets also fell sharply as fears about renewed US economic trouble stemming from the housing sector hurt stocks worldwide.
"I am starting to become concerned again. We are not coming out of the housing slump," said Kevin Giddis, analyst at Morgan Keegan.
"Lower rates and time are not fixing the credit crisis. We are about to begin what looks like a prolonged journey to the bottom of the economic sea and it is hard to find a happy face on Wall Street."
Wall Street, reeling from losses Monday linked to worries about the solvency of Freddie Mac and Fannie Mae, digested news that wholesale prices spiked by their largest margin in 27 years in the year to July, 9.8 percent.
A separate report showed construction of new homes plunged 11 percent in July to a 17-year low.
Those reports fanned fears of traders who had dragged stocks lower on Monday amid reports that the government-sponsored enterprises (GSEs), mortgage giants Fannie Mae and Freddie Mac, might be close to a bailout that could have wide-ranging implications.
"The credit crisis obviously didn't end at mid-2008," said Ed Yardeni at Yardeni Research.
"It isn't even obvious that the worst is over. The latest turmoil among the GSEs (Fannie and Freddie) and the widening credit quality spreads in the money and bond markets is certainly unsettling. Banks will have to refinance lots of their maturing bonds during the second half of this year. They will have to pay higher yields and that will force them to raise their lending rates."
Also hurting sentiment, crude oil prices spiked higher after OPEC member Venezuela said it would ask the cartel at its September meeting to cut production if downward price pressure continues.
New York's main contract, light sweet crude for September delivery, jumped 1.66 dollars to close at 114.53 dollars a barrel.
Among stocks in focus, Lehman Brothers skidded 13 percent to 13.07 dollars after a Wall Street Journal report said the troubled investment bank is looking to sell a portion of its prized asset management unit to shore up its balance sheet.
Fannie Mae fell 2.3 percent to 6.01 dollars and Freddie Mac shed 5.0 percent to 4.17 dollars, after heavy selling on Monday.
Among other financial stocks, Merrill Lynch dropped 3.7 percent to 23.82 and Citigroup declined 2.4 percent to 17.19 dollars.
General Dynamics dipped 0.27 percent to 91.99 dollars after the defence group announced the acquisition of Swiss-based Jet Aviation.
Bonds ended lower. The yield on the 10-year US Treasury bond rose 3.842 percent from 3.816 percent on Monday and that on the 30-year bond increased to 4.469 percent from 4.441 percent. Bond yields and prices move in opposite directions.
In London, the FTSE 100 index lost 2.38 percent to 5,320.40 while the Paris CAC 40 tumbled 2.61 percent to 4,332.79. Frankfurt's DAX shed 2.34 percent to 6,282.43.
The Euro Stoxx 50 index of leading eurozone companies lost 2.56 percent. - AFP/de
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