The Dow industrials tumbled more than 1.5% to close below 13000 for just the second time since August 16, dragged down by fresh worries about the housing and credit markets.
Asian markets ended mostly lower. Hong Kong stocks declined on concerns related to fund inflows from mainland China.
In an attempt to halt the rampant investment that is threatening to overheat the world's fastest growing major economy, Chinese regulators, over the past few weeks, have ordered commercial banks to freeze lending through the end of this year.
A China Banking Regulatory Commission official in Shanghai confirmed that local and Chinese subsidiaries of foreign banks have been requested to ensure that loans outstanding at year end don't exceed Oct. 31 levels.
Beijing's options are limited. Raising interest rates would lift the level of its currency, the yuan, to levels that exporters might find uncomfortable.
The lending freeze may, among other things, weaken earnings of key companies listed on the stock market and leave less cash in the financial system that might flow into the market.
Market Indices
Australia All Ordinaries 6601.30 + 1.15%
Bombay Sensex * 19633.36 - 0.33%
Hong Kong Hang Seng 27460.17 - 0.56%
Japan Nikkei 15042.56 - 0.74%
Shanghai Composite 5269.81 - 0.87%
Singapore STI 3411.72 - 0.85%
South Korea Composite 1893.47 - 1.70%
Taiwan Weighted 8680.71 - 0.96%
*Intraday
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