By Kristina Cooke (Forbes)

NEW YORK (Reuters) - U.S. stocks fell Friday as concerns about the financial sector flared up again after American International Group Inc reported a record loss and as the price of oil set another record.

AIG, the world's largest insurer, had to write down assets linked to subprime mortgages and said it would raise $12.5 billion in new capital to boost its balance sheet. Shares fell more than 8 percent.

Oil continued its record-breaking streak, rising above $126 a barrel, adding to concerns about inflation and that consumers will pare back their spending as higher prices at the pump cut into their disposable income.

Further painting a gloomy picture were pharmaceutical companies. Mylan Inc posted a wider loss, while Bristol Myers Squibb Co fell on the threat of generic competition in Europe for its top-selling blood thinner Plavix.

“The financials have really had another bout of weakness, and AIG is performing poorly. It doesn't seem to end really,” said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

The Dow Jones industrial average was down 129.53 points, or 1.01 percent, at 12,737.25. The Standard & Poor's 500 Index was down 10.41 points, or 0.74 percent, at 1,387.27. The Nasdaq Composite Index was down 7.23 points, or 0.29 percent, at 2,444.01.

But, Zaro said, stocks have enjoyed a run-up recently and the market's decline in the past two days could be seen as merely a pause.

Another big financial company, Citigroup Inc, said it intends to shed roughly $400 billion of non-core assets in a bid to become more competitive.

AIG shares slid 8.2 percent at $40.51, ranking as the heaviest weight on both the Dow and the S&P 500.

The Nasdaq fell less than the other indexes. Its losses were kept in check by a stronger-than-expected profit from video game maker Activision Inc and upbeat broker comments on graphics company Nvidia Corp Activision shares jumped 11.9 percent to $31, while Nvidia's stock gained 3.1 percent to $22.63.

Despite the rise in oil, Exxon Mobilwas among the top drags on the S&P 500 and the Dow. Analysts said investors may be locking in profits after strong gains in recent weeks. Others noted that when energy prices reach a certain level, it becomes more difficult for energy companies to pass on their higher input costs to consumers.

U.S. crude oil futures hit a record $126.20 a barrel, before pulling back somewhat to $125.44, still up 1.6 percent on the New York Mercantile Exchange.

Shares of Exxon Mobil fell 1 percent to $88.67 on the NYSE. EOG Resources shed 1.5 percent to $137.61.

Mylan stock sank 10.3 percent to $11.17, while Bristol Myers stock declined 4.6 percent to $21.75.