US stocks have slumped after AIG, the world's largest insurer, warned it had greatly underestimated its liabilities, further unnerving investors on edge ahead of a diplomatic meeting that could heighten the threat of war with Iraq.
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.
Worries about the foggy corporate profit outlook were reignited after AIG announced a massive charge of $1.8 billion to cover liability claims that have built up in recent years. AIG sank more than 6 per cent and pulled other insurers down.
"AIG is more than a bellwether. It's a reflection of where the global economy is, and for them to say they have balance sheet problems, it calls into question valuations everywhere," said Mr John Gillette, a trader at investment firm Lazard Freres.
The blue-chip Dow Jones Industrial average fell 96.81 points, or 1.19 per cent, to 8,013.01, and the broad Standard & Poor's 500 index dropped 12.14 points, or 1.41 per cent, to 848.18. The tech-loaded Nasdaq Composite lost 17.79 points, or 1.34 per cent, to 1,306.00.
Decliners beat advancers by a ratio of about 10 to seven on the New York Stock Exchange and about five to three on Nasdaq. More than 1.4 billion shares changed hands on the Big Board and more than 1.3 billion were traded on Nasdaq in heavy trading.