The gloom on Wall Street has intensified with investor confidence shaken by the banking industry's troubles and the economic outlook becoming darker.
In a punishing week for the market, the main indexes fell sharply as record-high crude oil prices and a sagging dollar further undermined sentiment.
The Dow Jones Industrial Average tumbled 4.07 percent in the week to Friday to end at 13.042.74.
The broad market Standard & Poor's 500 slid 3.7 percent to 1,453.70 and the tech-heavy NASDAQ plummeted 6.5 percent to 2,627.94 amid a sharp shift in sentiment on technology companies like Google and Apple.
Markets have been getting more bad news from the financial sector all week starting with a shakeup at Citigroup as the US banking titan said it would have to write off up to 11 billion dollars in soured real-estate investments, far higher than earlier anticipated.
Other banks also warned of writedowns including Wachovia, Bank of America and JP Morgan Chase.
"The major hurdle for the market has been and will continue to be the fate of the financials," said Larry Wachtel at Wachovia Securities.
Wachtel said the market fears "subprime contagion" and is waiting to see the magnitude of writedowns against nonperforming mortgage debt.
"Something on the order of US$20 billion has been revealed and estimates for full damage range from as low as US$60 billion to as high as US$250 billion," he said. "The market apparently can stabilize only when the financial bleeding stops."
The weak dollar and surging fuel prices have also added to the gloomy picture.
Sal Guatieri, economist at BMO Capital Markets, said that sky-high gasoline prices will pinch consumers as the year-end holiday season approaches.
"Given the uncertain economic climate, consumers are more likely to rein in spending than ask for higher wages," he said.
Federal Reserve chairman Ben Bernanke failed to allay concerns as he told US lawmakers he sees an extended period of "sluggish" growth as troubles deepen in the real-estate market.
Paul Nolte at Hinsdale Investments said the grim outlook for Wall Street is justified.
"The real-estate market is not like the stock-market bubble and will take a much longer time to work out," he said. "Our best guess is an initial bottom is likely in 2009 and we won't see a meaningful turn higher in overall real-estate prices until sometime 2011-2012."
As for Wall Street, he said "the markets are in the process of a correction that may blow up into a significant decline."
Bonds were mixed in the past week. The yield on the 10-year Treasury bond fell to 4.225 percent from 4.291 percent a week earlier, and that on the 30-year Treasury rose to 4.602 percent from 4.595 percent.