Credit Worries Clobber Stocks

"This is more of the same continued uncertainty," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "The extent of this credit issue and exposure for the rest of the market is unknown at this time, and the market hates that."

Adding to the concerns was news that Home Depot(HD Quote) is in talks with the private-equity buyers of its supply unit to amend the terms of the deal, including a potential price cut. The retailer also cut the price of its Dutch tender offer, citing the financial market conditions. The Dow component fell $2.01, or 5.3%, to close at $35.79.

Before the latest setback, fears of a credit crisis had cooled this week, allowing the Dow to rally nearly 500 points over the past three days.

Last time out, the Dow was higher most of the session, briefly turned negative, then rallied to close up 153.56 points, or 1.14%, to 13,657.86.

The Nasdaq was the big winner Wednesday, jumping 51.38 points, or 2.01%, to 2612.98 following Cisco's (CSCO Quote) earnings beat and strong outlook. The S&P 500 finished higher by 20.78 points, or 1.41%, at 1497.49.

Retail reports flooded in to start the new session. The world's biggest retailer, Wal-Mart (WMT Quote), surprised analysts after it said comparable-store sales climbed 1.9% in July. Analysts had expected a 1.5% rise. The company also said it expects same-store sales to climb 1% to 2% in August. Wal-Mart slid $1.97, or 4.1%, to end at $46.45.