By Ellis Mnyandu (Reuters)

U.S. stocks tumbled on Wednesday, driving the benchmark S&P 500 briefly into negative
territory for the year, on fears that the credit crisis and fallout from the housing slump will
hurt economic growth, while a surge in fuel costs threatened to squeeze holiday spending.

Shares of financial services companies, including Goldman Sachs Group Inc., led the
sell-off, while those of big manufacturers and retailers sunk on concern about the impact of
crude oil prices nearing $100 a barrel.

U.S. Treasury Secretary Henry Paulson said the number of potential U.S. home-loan
defaults will be significantly bigger in 2008 than in 2007. His comments in an interview with
The Wall Street Journal added to the market's negative tone.

Shares of mortgage lenders, including Countrywide Financial Corp, also tumbled.
American International Group Inc, the world's biggest insurer by market value, was the top
drag on both the Dow and the S&P 500, down more than 6 percent to $50.86, its lowest
since April 2005.

"With the headlines of the subprime and the way the stock market is acting and oil
prices at their high -- that creates a perfect cluster of worries for the consumer,"
said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

The Dow Jones industrial average was down 119.17 points, or 0.92 percent, at 12,890.97.
The Standard & Poor's 500 Index was down 14.72 points, or 1.02 percent, at 1,424.98.
The Nasdaq Composite Index was down 30.14 points, or 1.16 percent, at 2,566.67.

U.S. crude for January delivery hit a record $99.29 earlier on Wednesday before retreating
on the New York Mercantile Exchange. NYMEX January crude at midday was down 89
cents at $97.14 a barrel.

Stocks extended losses after data showing U.S. consumer sentiment fell in November to
its lowest in two years.

Risk aversion drove investors to see a safe haven in U.S. government bonds, sending the
yield on the benchmark 10-year Treasury note down to 4.01 percent, its lowest level since
2005.
By late morning, the S&P 500 had erased all of its 2007 gains and was a whisker away
from dropping 10 percent off its record closing high set in October. The benchmark S&P
500 later recouped some of that loss slightly to inch back into positive territory for the year,
up about 6 points from its close on Dec. 29, 2006.

Shares of Goldman Sachs dropped 3.3 percent to $210.25 on the New York Stock
Exchange, while AIG fell 4.8 percent to $51.83. On Tuesday, an AIG shareholder sued
several of the company's oficials over the insurer's exposure to the subprime mortgage
crisis.

Shares of Countrywide, the biggest U.S. mortgage lender, declined 8.8 percent to $9.38
on the New York Stock Exchange. On Tuesday, the stock plummeted as much as 22
percent.

Shares of Freddie Mac fell 3.9 percent to $25.70, extending a slide from Tuesday when
the No. 2 U.S. mortgage finance company posted a $2 billion loss for the third quarter.
Several brokerages cut their price targets on the stock.

The S&P financial index fell 1.9 percent.

Among big manufacturers, General Electric fell 2.4 percent to $37.12, while among
retailers, home improvement chain Home Depot Inc declined 1.8 percent to $27.99.

On the Nasdaq, shares of iPod maker Apple Inc (AAPL.O: Quote, Profile , Research) led
losers, falling 1.4 percent to $166.48.

(Additional reporting by Kristina Cooke; Editing by
Jan Paschal)