Late Selloff Whips Wall Street

"There is no base here, so it will take some time before mounting anything more than a technical bounce, and hopefully soon," said Pado.

Volume was strong while breadth was weak. On the New York Stock Exchange 4.65 billion shares changed hands. Volume on the Nasdaq reached 2.57 billion shares. Losers beat winners 2 to 1.

Earlier, rumors that Countrywide Financial (CFC Quote) would file for bankruptcy protection sent the major averages reeling. The speculation drove the lender's stock sharply lower and slammed financial stocks.

Countrywide said there was no truth to the speculation. Still, shares plunged $2.16, or 28.3%, to end at $5.48.

"This is a market that is ripe for rumors, given the type of discomfort that is out there," said Paul Mendelsohn, chief investment strategist with Windham Financial. "Technically, we're breaking through a five-year uptrend line and we're taking out lows from November. People are looking for an excuse to sell and get out."

Among other financial names, Bear Stearns (BSC Quote) dropped 6.7% to $71.17. Earlier, shares rose on word that CEO Jimmy Cayne will resign from the position. The change comes after criticism over Cayne's reaction to the credit crisis that has knocked the stock 53% lower over the past year.

The Amex Securities Broker/Dealer Index fell 4.7%, as component E*Trade Financial (ETFC Quote) tumbled 20.5% on fears of capital strains. Morgan Stanley (MS Quote), Merrill Lynch (MER Quote), Goldman Sachs (GS Quote) and Lehman Brothers (LEH Quote) also finished with losses.