US Stocks fell late today after American International Group Inc., the world's largest insurer, warned that it had drastically underestimated liability claims, unnerving investors already bracing for a key diplomatic meeting that could heighten the threat of war.
War jitters sent the price of gold to a 6-year high, drove the dollar lower and pumped up oil prices a day before US Secretary of State Colin Powell is scheduled to provide the UN Security Council with evidence Washington says will show that Iraq is hiding banned weapons from UN arms inspectors.
"If (Powell) comes out and shows proof that refutes what the Iraqis are saying, that will raise the war issue again, and that will obviously upset the marketplace -- and it shows," said Mr Tim Smalls, managing director at S.G. Cowen. "The fear factor's coming back in."
AIG sank almost 8 per cent after announcing a massive charge to cover old liability claims, and other insurance companies fell, too.
Technology bellwether Cisco Systems Inc. dropped nearly 4 per cent on investor fears it may offer a cautious outlook when it posts earnings after the bell. Telecommunications stocks limped lower after French equipment maker Alcatel warned of weak sales.
The blue-chip Dow Jones Industrial average fell 125.95 points, or 1.55 percent, to 7,983.87, and the broad Standard & Poor's 500 index dropped 16.14 points, or 1.88 percent, to 844.18. The tech-loaded Nasdaq Composite lost 25.31 points, or 1.91 percent, to 1,298.48.
"Apprehension is growing about the uncertainties of what may occur in the Middle East," said A.C. Moore, chief investment strategist at Dunvegan Associates. "It's to be expected to see this type of volatility and softness until, perhaps, a successful outcome is obtained."