Stocks plunged Wednesday as the dollar sank to new lows against other major currencies, in a one-two punch that deepened concerns about the outlook for the U.S. economy.
The latest rout on Wall Street was led by already-battered bank shares. That suggested that the Federal Reserve's three-month campaign to cut interest rates hadn't restored confidence in the financial system, which has been hammered by soaring mortgage defaults.
Adding to the gloom was another record trading high in oil prices, which have been streaking toward $100 a barrel, increasing fears of a sharper hit to consumers' pocketbooks.
Financial markets have been counting on the Fed to continue easing credit as a prop for the economy and to help ailing lenders.
But the central bank now risks being caught in a bind, some analysts say: If it continues to lower interest rates, it could further undermine the sagging dollar and drive away foreign investors, sending markets reeling.
Washington Mutual Inc., the nation's largest savings and loan, became the latest financial giant to warn of multibillion-dollar losses as more homeowners fall behind on their mortgages.
"The soft landing we were anticipating quickly transitioned to a severe downturn," Kerry Killinger, the Seattle-based company's chief executive, told investors in New York.
The Dow Jones industrial average sank 360.92 points, or 2.6%, to 13,300.02, its lowest level in nearly two months.
The tumbling dollar is compounding investors' fears. Each decline in the greenback devalues the substantial U.S. investments of foreigners, who have been a crucial source of funding for the nation's huge budget and trade deficits.
The dollar's continuing slide raises the risk that foreign investors could balk at buying more American securities, such as Treasury bonds. That, in turn, could worsen the already severe credit crunch rooted in the housing market's woes.
The dollar crumbled Wednesday after Chinese officials implied that the country might sell off dollar-denominated securities to diversify its $1.4 trillion in foreign-currency reserves.
"We will favor stronger currencies over weaker ones, and will readjust accordingly," Cheng Siwei, vice chairman of China's National People's Congress, said at a conference in Beijing, Bloomberg News reported.
Although many analysts said Cheng had just reiterated what other Chinese officials have said this year, currency traders seized on his words, driving the dollar down sharply.
