"Feels like we're on the edge of a panic to me," Jeffrey Saut, chief investment strategist at Raymond James & Associates in Saint Petersburg, Florida, told the Bloomberg financial news agency.
"In our business, psychology is everything and psychology has changed real quick on Wall Street," he said.
The Standard & Poor's 500 Index lost 19.84 points, or 1.4 per cent, to 1,406.70, erasing its 2007 gains. The blue-chip Dow Jones Industrial Average slid 167.45, or 1.3 per cent, to 12,861.47, closing below 13,000 for the first time since April. The technology-heavy Nasdaq Composite Index tumbled 40.29, or 1.6 per cent, to 2,458.83.
Wall Street's latest retreat came despite tame US inflation data. Consumer prices rose 0.1 per cent in July after an 0.2-per-cent rise in June, the Labour Department said.
The US Federal Reserve pumped 7 billion dollars into financial markets Wednesday morning in a new effort to keep losses from risky loans to home buyers, known as subprime mortgages, from causing a credit crunch.
The dollar rose to 74.42 euro cents from 73.87 on Tuesday. The US currency fell to 116.57 Japanese yen from 117.61.
Gold fell 1.10 dollars to 667.25 dollars per fine ounce.//DPA
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