By Leah Schnurr
NEW YORK (Reuters) - Stocks slid on Tuesday as a move by the Federal Reserve to shore up the commercial paper market failed to stem fears about the widening fallout from the credit crisis.
The financial sector was the biggest drag on the market, led by Bank of America, which skidded 18 percent the day after it said it would cut its dividend and would raise $10 billion to help staunch rising loan losses.
The Fed's announcement that it would create a special-purpose facility to buy up commercial paper, raised some hopes that companies will have more access to cash to run day-to-day operations.
But that enthusiasm soon fizzled, given continuing anxiety over the impact of the credit freeze on the global economy and the corporate profit outlook.
Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said Bank of America's results, which were released unexpectedly after the closing bell on Monday, set the negative tone early on.
"We haven't seen signs that the actions have thawed the credit crisis, and investors are really bracing for what probably will be disappointing third-quarter earnings and extremely disappointing fourth-quarter guidance," said Dickson.
Alcoa Inc is scheduled to report quarterly results after the closing bell. Shares of the aluminum producer were up more than 1 percent.
The Dow Jones industrial average was down 188.61 points, or 1.89 percent, at 9,766.89. The Standard & Poor's 500 Index was down 22.57 points, or 2.14 percent, at 1,034.32. The Nasdaq Composite Index was down 42.07 points, or 2.26 percent, at 1,820.89.
The price of oil rose, heightening concerns about consumer and business spending. An index of airline stocks fell 10 percent.
But oil companies moved higher along with crude prices. Exxon Mobil was the top boost on the Dow, rising nearly 3 percent, while Chevron gained more than 1 percent.
Market action was choppy the day after Monday's steep drop in global equity markets, which had caused investors to bet that central banks might orchestrate a coordinated interest rate cuts to calm investor nerves. Traders cited some disappointment that coordinated rate cuts did not materialize.
There was also some uncertainty about whether the Fed's efforts to unfreeze credit markets by buying up commercial paper would work.
"CP is basically the credit card for financial institutions and corporate institutions ... and the Fed stepping in and basically acting as clearing house for CP is a major stop-gap attempt to try to open up that incredibly critical market," said Dickson. "We'll see if it works."
(Additional reporting by Ellis Mnyandu; Editing by Kenneth Barry)
