Wall Street shares suffered sharp falls in late trading on Wednesday after spending the day jumping between positive and negative territory.
The Dow Jones closed below 13,000 for the first time since 24 April
The Dow Jones closed 167.5 points or 1.3% lower at 12,861.5, while the S&P 500 is now down for the year.
It was the first time that the Dow Jones had closed below the 13,000 mark since 24 April.
The falls were caused by continuing concerns about the state of credit markets worldwide.
The S&P 500 index dropped 19.8 points or 1.4 percent to 1,406.70, which means it has now wiped out all of its gains for the year.
The problems in the US housing market came to the fore again as Merrill Lynch told its clients to sell any shares they own in the country's largest mortgage lender, Countrywide Financial.
It warned that Countrywide could face bankruptcy if the availability of credit in the market gets any worse and there were market rumours that the lender had indeed failed to raise some money it needed.
Worries about a slowdown in US consumption were not helped by results from the department store Macy's, which blamed the "difficult" climate for a 77% fall in its quarterly profits.
Earlier in the session, investors were soothed by US government data that showed consumer inflation rising by just 0.1% in July, slightly less than expected.
The news that the Federal Reserve had made another $7bn (£3.5bn) of reserves available to the banking system should also have soothed the market.
It pales in comparison with the $38bn that was injected last Friday, but still acted as a reminder that the central bank is prepared to provide cash when it is needed.