The major indexes fell about 2 per cent, including the Dow Jones industrial average, which lost more than 275 points.

The National Association of Realtors said sales resumed their decline in June after a slight rebound in May. Existing home sales dropped 2.6 per cent in June, well beyond the 1 per cent drop economists had forecast.

Investors punished shares of homebuilders and financial companies on Thursday because both sectors have struggled with the declining housing market.

Mr Alan Lancz, director at investment research group LanczGlobal, said investors are concluding that while financials had been oversold and were due for a rebound, problems remain with tight credit and souring mortgage debt.

'You have the rally and you almost get the hangover now where you say 'You know, we're not out of the woods yet,'' he said.

The Dow fell 283.10, or 2.43 per cent, to 11,349.28. It was the biggest decline for the Dow since June 26.

The pullback erased the nearly 170 points added in the two prior sessions. Last week, the Dow gained nearly 400 points.

The Standard & Poor's 500 index fell 29.65, or 2.31 percent, to 1,252.54.

A jump in Amazon.com Inc. shares helped contain some of the decline in the technology-heavy Nasdaq composite index, which fell 45.77, or 1.97 per cent, to 2,280.11.

Stocks had risen in the prior two sessions as the price of oil declined. Oil is now down more than US$20 (S$27.24) after just weeks ago hitting a record above US$147 a barrel. A barrel of light, sweet crude rose US$1.05 Thursday to settle at US$125.49 on the New York Mercantile Exchange.

Bond prices jumped Thursday as some investors looked for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.02 per cent from 4.12 per cent from late Wednesday.

The dollar was mixed against other major currencies, while gold prices rose.

Financial stocks declined again on Thursday after rising sharply in the past week from their recent lows.

Washington Mutual fell 62 cents, or 13 per cent, to US$4.03 after falling 20 per cent Wednesday as concerns persisted about the company's mortgage portfolio. The nation's largest thrift this week posted a US$3 billion loss due to increases in its loss reserves to cover souring loans in its mortgage holdings.

Other financials lost ground. Citigroup fell US$2.06, or 9.8 per cent, to US$19.06, while Merrill Lynch fell US$4.77, or 14 per cent, to US$29.04. Wachovia declined US$1.96, or 11 per cent, to US$15.69.

Fannie Mae and Freddie Mac fell sharply after rallying earlier in the week on legislation speeding through Congress that would grant the Treasury Department power to extend the government-sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary. The companies together back or own US$5 trillion in mortgages - nearly half the nation's total.

Fannie Mae fell US$2.98, or 20 per cent, to US$12.02, while Freddie Mac fell US$1.99, or 18 per cent, to US$8.81.

Adding to investors' pessimism, the Labour Department reported on Thursday that the number of people filing first-time claims for unemployment benefits bolted past 400,000 last week as companies trimmed their work forces to cope with a slowing economy.

Investors also absorbed a mix of earnings reports from names like Ford Motor, which reported a big loss, and Dow Chemical, which said higher costs for raw materials sent earnings down sharply.

But drug makers Bristol-Myers Squibb and Eli Lilly both reported higher earnings as the weak dollar boosted foreign sales, and Amazon.com Inc. turned in a solid report that beat expectations.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.65 billion shares compared with 1.72 billion shares traded Wednesday.

The Russell 2000 index of smaller companies fell 16.80, or 2.34 per cent, to 702.39. -- AP