NEW YORK — Stocks sank in thin trading Monday as worries about American International Group Inc. touched off broader concerns that financial companies will face more trouble.
The major indexes lost about 2 percent. The Dow Jones industrial average fell by nearly 250 points, erasing a gain of about 200 points Friday. Bond prices jumped as investors fled to the safety of government debt.
New York-based AIG was the steepest decliner among the 30 stocks that make up the Dow industrials after a Credit Suisse analyst cut his price target on the world’s largest insurer and after Fitch Ratings warned late Friday that it might cut its ratings on the company, which has been buffeted by investors’ distaste for some of the types of complex debt instruments on AIG’s books.
The financials have struggled in part because of a spike in the number of homeowners who have fallen behind on their mortgage payments. A report Monday by a trade group for real-estate agents showed the number of unsold properties rose to an all-time high in July. On the other hand, the report by the National Association of Realtors said sales of existing homes increased 3.1 percent, a better- than-expected result.
The news arrived as volume remained light, with many traders on vacation for the last week of August. Sean Simko, head of fixed-income management at SEI Investments, said the stock and bond markets are likely showing outsize reactions because of the thin stream of trades.
The Dow industrials fell 241.81, or 2.08 percent, to 11,386.25. The Dow surged nearly 200 points Friday as oil fell more than $6 a barrel — its biggest percentage drop in more than four years — and after Federal Reserve Chairman Ben Bernanke said inflation pressures are likely to moderate.
Broader stock indicators also fell Monday. The Standard & Poor’s 500 index declined 25.36, or 1.96 percent, to 1,266.84, and the Nasdaq composite index fell 49.12, or 2.03 percent, to 2,365.59.
“We’re in a very nervous market,” said Alfred E. Goldman, chief market strategist at Wachovia Securities.
He doesn’t expect Wall Street to carve out a direction until trading volumes increase.
“The whole week is going to be a do-nothing week,” he predicted, referring to the volume. “I expect to see the market backing and filling.”
