Late Selloff Slams Stocks

Updated from 4:28 p.m. EDT

Stocks took a late tumble Tuesday as soaring oil prices and a reminder of the tough times in the mortgage industry derailed an early rally.

After climbing as many as 138 points in the morning, the Dow Jones Industrial Average turned lower late in the afternoon, and its losses accelerated toward the close. The index fell 146.32 points, or 1.10%, to 13,211.99.

The S&P 500 dropped 18.64 points, or 1.26%, to 1455.27, and the Nasdaq Composite fell 37.01 points, or 1.43%, to 2546.27.

"The market's strong run in the morning ended when it was met with resurfacing credit worries and the price of oil," said Peter Cardillo, chief market economist with Avalon Partners. "We gave back all of yesterday's gains plus more. We're back to square one, where we continue to worry about the negatives we ignored for so long."

Weighing on the market was dire news from lender American Home Mortgage (AHM Quote), which warned that it may have to liquidate its assets as it deals with rising defaults among home buyers. The stock plunged 90% to $1.04.

"It's hard to say whether American Home Mortgage is the main problem [with the market], although it could be the first in a whole series of dominos," said Paul Mendelsohn, chief investment strategist with Windham Financial. "We're in for a very bumpy road. The financial sector [was] much lower after this news, telling us there are a lot of fears in the credit market."