Wall St dives over 4 pct on bank fears, AIG fallout! It’s getting worse!

Dow’s 449-point drop is second worst of the year as AIG bailout spreads fears about financial sector to Goldman, Morgan Stanley.

NEW YORK (Reuters) – Wall Street tumbled to a three-year low on Wednesday as the U.S. rescue of insurer AIG failed to calm a crisis of confidence in global markets, leaving banks scared to lend to each other.

Rattled investors worried about who could be the next victim of the global credit crisis, prompting them to dump financial shares across the board. The sell-off drove all three major U.S. stock indexes down more than 4 percent at the close. The S&P 500 financial index slid 9 percent.

Shares of the two remaining independent U.S. investment banks, Morgan Stanley and Goldman Sachs both fell sharply.

Based on the latest available data, the Dow Jones industrial average fell 449.36 points, or 4.06 percent, to end unofficially at 10,609.66. The Standard & Poor’s 500 Index dropped 57.20 points, or 4.71 percent, to finish unofficially at 1,156.39. The Nasdaq Composite Index lost 109.05 points, or 4.94 percent, to close unofficially at 2,098.85.