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Credit Worries Clobber Stocks

08/09/07 - 04:42 PM EDT

Robert Holmes

Updated from 4:13 p.m. EDT

Stocks were slammed Thursday as news of a fund freeze in Europe renewed fears about the tightening liquidity markets and a spread of the subprime meltdown.

The Dow Jones Industrial Average plunged 387.18 points, or 2.83%, to 13,270.68, ending at session lows as a triple-digit slide steepened near the close. It was the biggest one-day point loss for the Dow since Feb. 27, when a selloff in China contributed to a 416-point decline.

The S&P 500 slid 44.40 points, or 2.96%, to 1453.09, and the Nasdaq Composite sank 56.49 points, or 2.16%, to 2556.49.

The steep declines came after French bank BNP Paribas said it has suspended three of its funds that have exposure to U.S. credit markets because of the inability to accurately value the mortgage-backed securities. The bank is just the latest financial firm to warn about exposure to liquidity problems in the U.S. credit market amid widespread defaults of subprime mortgage borrowers.

"With fresh evidence of the exposure of credit risk, the market can't get any traction and drops," said Art Hogan, chief market analyst with Jefferies. "The response may be overdone, but no one wants to get in the way when the ball starts rolling. This is consistent with what we've seen over the last couple weeks. This is the other shoe we've been waiting to drop."

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