Updated from 4:12 p.m. EDT

Stocks had another back and forth session Wednesday before ultimately closing with steep losses, and the

Dow Jones Industrial Average

dropped under 13,000 for the first time in four months.

After recovering from an early swoon to rise by as many as 90 points, the Dow gave back all of those gains and more, surrendering 167.45 points, or 1.29%, to 12,861.47. The index last closed below the 13,000 mark on April 24.

Elsewhere, the

S&P 500

lost 19.84 points, or 1.39%, at 1406.70, and now is in negative territory for the year. The

Nasdaq Composite

slid 40.29 points, or 1.61%, to 2458.83.

"The technical conditions are not relevant anymore, as we can't get past the fact that there is a crisis per day," said Larry Wachtel, senior market analyst with Wachovia Securities. "Traders are simply trying to get through the day without an incident in financial stocks. The normal benchmarks, such as yearly gains, have to be thrown out the window."

The action wasn't exactly a surprise for daily market watchers considering the recent volatility, and at the forefront again were continuing jitters about credit.

"Each and every attempt

to go higher is met with bad news that undermines confidence," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "Now that the major global central banks have dumped liquidity into the market openly, they will be committed to keeping the spigot open."

Some of the ugliest action took place in


( CFC), where fears about its health sent the stock down 13% to close at $21.29. Merrill Lynch downgraded the shares all the way to sell from buy, citing the lack of liquidity in the mortgage market.

"The news about Countrywide's commercial paper issue was another debacle for the credit market," said Art Hogan, chief market analyst with Jefferies. "This just serves as a reminder that, with the country's largest mortgage originator in trouble, equities traders are pondering just how far this will reach."


KKR Financial Holdings


tanked 31.1% to $10.52 after the Kohlberg Kravis Roberts affiliate said trouble in the residential mortgage and commercial paper markets is forcing it to hold talks with investors in some of its asset-backed facilities regarding possible options for resolving potential funding issues.

Thornburg Mortgage

( TMA) was dropped to sell at Citigroup and A.G. Edwards, but it still had a 38.8% advance a day after sinking more than 40%.

Among subsector indices, the NYSE Financial Sector Index slumped 1.6%, the Nasdaq Financial 100 Index shed 0.9%, and the KBW Bank Index was off 0.8%.

"Given the continued weakness and pressure on funds that specialized in the subprime mortgages, the broader bank and brokerage stocks are getting pulled down right along with the specialized funds as investors panic out," Pado said.

Earlier, the

Federal Reserve

delayed a planned one-day repurchase agreement due to technical issues, only to later add $7 billion in reserves. One-day repos provide short-lived cash injections into the monetary system and are reversed the following day.

Central banks around the world have plowed in billions of dollars in liquidity in recent days, though the pace has slowed of late.

On the

New York Stock Exchange

4.35 billion shares changed hands, as decliners crushed advancers by a 5-to-1 margin. Volume on the Nasdaq reached 2.30 billion shares, with losers outpacing winners nearly 7 to 3.

On Tuesday, the domestic averages fell hard following disappointing earnings reports from


(WMT) - Get Report


Home Depot

(HD) - Get Report

and more lending-market setbacks.

By the end of the day, the Dow had tumbled 207.61 points, or 1.57%, to 13,028.92. The S&P 500 fell 26.38 points, or 1.82%, to 1426.54, and the Nasdaq gave up 43.12 points, or 1.7%, to close at 2499.12.

Global equity measures struggled in the wake of a decline in U.S. stocks last time out. Tokyo's Nikkei fell 2.2%, and Hong Kong's Hang Seng plummeted 2.9%. London's FTSE was worse by 0.6%, while Frankfurt's DAX managed to gain 0.2%.

Meanwhile, the economic docket was fairly crowded. The Labor Department's consumer price index climbed 0.1% for July and the core index, which excludes food and energy prices, rose 0.2%. Both figures were in line with estimates.

The closely monitored core inflation figure is now up 2.2% over the past 12 months, unchanged from June.

The data came a day after the producer price index, which rose a greater-than-expected 0.6% in July. The core PPI was up 0.1% and was below estimates. The PPI report measures inflation at the wholesale level.

The CPI is considered the more important of the two when it comes to influencing Fed's decisions on interest rates, but both are factored into the central bank's planning.

Also on the economic front, the Fed said that industrial production rose 0.3% in July as capacity utilization inched up to 81.9% from 81.8%. The data matched forecasts.

Separately, the New York Fed said its Empire State survey rose to a reading of 25.1 in August from 26.5 in July. Economists had expected a decline to 19.

Oil prices were higher for a third straight session. The front-month September crude contract jumped 95 cents to close at $73.33 a barrel, bolstered by a storm in the Gulf of Mexico and another system swirling in the Atlantic Ocean.

Treasury prices were mixed. The 10-year note rose 7/32 in price, yielding 4.70%, while the 30-year bond lost 8/32, raising the yield to 5.01%.

Among earnings,


(DE) - Get Report

had much better than expected profits, and

Sara Lee

( SLE) got past analysts' quarterly estimates.



issued an optimistic forecast.