Dow Dive Aided by Trading Error

Updated from 6:52 p.m. EDT

The bad news for those long stocks is that major averages were unable to build on Tuesday's robust advance. The worse news is that Wednesday's setback went from relatively tame to potentially unsettling. The strangest news of all was that significant selling came about because of human error.

More than an hour after the market closed, the New York Stock Exchange released the following statement:

"As a result of a clerical error at approximately 3:40 p.m. today, Bear Stearns entered orders to sell $4 billion worth of S&P securities. The orders should have been entered as $4 million. All but $622 million of the orders were cancelled prior to execution. The firm has advised the NYSE that the risk from the executed orders has been substantially hedged."

That error contributed to the Dow Jones Industrial Average's fall of 183.18, or 2.3%, to 7755.61 after trading as high as 7769.40 and as low as 7742. The S&P 500 slid 2.4% to 827.91, while the Nasdaq Composite shed 2.2% to 1187.30.

Stock proxies traded briefly in positive territory at midday amid strength in semiconductors, presumably owing to Tuesday night's report by Dell (DELL) raising guidance. But after trading as high as 263.39, the Philadelphia Stock Exchange Semiconductor Index closed up a fraction to 249.95, fading as major averages tumbled in the final 90 minutes of trading. (After the close of trading, Advanced Micro Devices (AMD) warned its third-quarter revenue will be far below expectations, which likely will pressure chip stocks Thursday, at least early on.)

Wednesday's late selloff was made worse by the placement of a huge sell order through the electronic DOT trading system that apparently was placed in error. According to several trading sources who spoke before the NYSE's explanation, an order was placed by Bear Stearns for 1 million shares each of big-cap names, including General Electric (GE), ExxonMobil (XOM), Home Depot (HD), Fannie Mae (FNM) and Eastman Kodak (EK).