AIG and Wal-Mart spark sell-off on Wall Street

By Kristina Cooke

NEW YORK (Reuters) - U.S. stocks tumbled on Thursday after a big loss from insurer American International Group fueled fears of more fallout from the credit crisis and Wal-Mart's (WMT.N: Quote, Profile, Research, Stock Buzz) cautious sales forecast added to concerns about consumer spending.

The mood in the financial sector was rattled after AIG (AIG.N: Quote, Profile, Research, Stock Buzz), the world's largest insurer, posted its third consecutive quarterly loss of more than $5 billion as it wrote down bad mortgage-related investments. AIG's shares had their worst day in more than two decades.

Citigroup (C.N: Quote, Profile, Research, Stock Buzz) added to the sector's unease after the bank agreed to buy back more than $7 billion of illiquid auction-rate securities to settle charges it misled investors about the debt's risk. American Express' (AXP.N: Quote, Profile, Research, Stock Buzz) shares fell after Moody's Investors Service said it may downgrade the credit card company's debt rating.

Concerns about the consumer were pushed into the spotlight after Wal-Mart Stores reported disappointing July sales results as shoppers ran out of extra tax rebate cash, damping hopes for the current back-to-school shopping season.

A U.S. government report that showed the number of people filing for first-time jobless benefits jumped to the highest level in more than six years in the latest week added to concerns about the outlook for consumer spending, as did a rise in the price of oil.

"Today we're facing a host of news reports which do not bode well for stocks prices. AIG is still in the eye of the storm and then you have Wal-Mart and jobless claims, which added to the lack of enthusiasm for stocks," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut.

The Dow Jones industrial average .DJI slid 224.64 points, or 1.93 percent, to close at 11,431.43, led lower by Wal-Mart and AIG.

The Standard & Poor's 500 Index .SPX fell 23.11 points, or 1.79 percent, to 1,266.08, while the Nasdaq Composite Index .IXIC dropped 22.64 points, or 0.95 percent, to 2,355.73.  Continued...