Dow Sinks 411 Points as Investor Nerves Fray

Updated from 3:29 p.m. EST

Stocks in the U.S. got walloped Wednesday, closing with discouraging losses after Treasury Secretary Henry Paulson proposed new ways to spend the Troubled Asset Relief Program's remaining funds, retailers offered cringe-worthy sales forecasts and Congress looked at a potential bailout for the sickly auto sector.

The Dow Jones Industrial Average lost 411.30 points, or 4.7%, to 8331.24, and the S&P 500 gave back 46.65 points, or 5.2%, to 852.30. The Nasdaq slid 81.69 points, or 5.2%, to 1499.21.

The status of programs to quell turmoil in the financial space was occupying investor attention. The Wall Street Journal reported ahead of Wednesday's session that the Treasury may begin to require companies to raise private money before gaining access to the $700 billion Troubled Asset Relief Program.

The Journal also reported that American Express (AXP Quote), which on Monday had become a bank-holding company and thus eligible for funds from the Federal Reserve, was attempting to get $3.5 billion in capital injections from the government. American Express shares dropped 10% to $20.05.

Paulson, speaking in Washington Wednesday morning, offered an update on the state of the TARP. "We have taken the necessary steps to prevent a broad systemic event," said Paulson, but he cautioned that the financial system remains fragile and turmoil in the markets will not abate until the housing correction resolves itself. He proposed a broad expansion of the use of TARP funds, and that non-banks may also need access to emergency funding.

Paulson also said that remaining TARP funds will be used to target ailing consumer financing markets and support homeowners facing foreclosure.