Industrial and material stocks led more Wall Street falls on Thursday as concerns heightened that the intensifying credit squeeze was spreading beyond the financial sector.

“The reality is setting in that every day that they can’t fix this crisis is a day that a company can’t get funding,” said Marc Pado, market strategist at Cantor Fitzgerald. “People just didn’t think it was going to [happen] this quick.”

Largely absent from the SEC’s financials-dominated short-ban list, the big names in these sectors sustained heavy losses as worse-than-expected factory orders and jobless claims also showed that demand was slackening.

Agricultural stocks were among the worst hit in the S&P materials sector, which tumbled 8 per cent overall. Mosaic sank 41.3 per cent to $39.65 after disappointing first quarter earnings and warning it would sharply reduce phosphate production.

Merrill Lynch cut its recommendation on fertiliser peers Potash and Agrium, which lost 27 per cent to $93.51 and 24.2 per cent at $41.61 respectively, from “buy” to “underperform”.

Monsanto, meanwhile, dropped 16.2 per cent to $82.01 after Merrill Lynch also cut its recommendation on the seed and herbicide producer from “buy” to “neutral’’.

Industrials endured another heavy fall, down 6.8 per cent. Hedge-fund redemptions weighed on the performance of some stocks, observers said.

CSX and Union Pacific, down 11 per cent at $47.21 and 10.1 per cent at $62.10 respectively, led a nosedive in the railway sector that erased much of its gain for the year.

Both were included in a list of stocks that “matter most” to hedge funds, compiled by Goldman Sachs.

A profit warning from trucker Con-way pushed the shares 20.5 per cent lower to $34.16.

Airlines – such as Northwest, down 7.5 per cent at $9.71 – endured sharp declines in spite of a drop in oil prices.

Meanwhile, GE sank 9.6 per cent to $22.15 on Thursday after it priced 547.83m shares at $22.25 apiece, below Wednesday’s closing price.

The S&P 500 closed down 4 per cent at 1,114.28 points. The Nasdaq Composite index was down 4.5 per cent at 1,976.72, while the Dow Jones Industrial Average fell 3.2 per cent to 10,482.85.

The resource-heavy Toronto Stock Exchange dropped 7 per cent to 10,900.54 points.

The Chicago Board Options Exchange Volatility index shot up 14.6 per cent to 45.61, indicating extremely high levels of distress.

Although US senators revived the banking sector bail-out plan on Wednesday night, investors were nervous ahead of another vote from the House of Representatives expected on Friday.

Financials also continued their slide, down 4.3 per cent in spite of a relatively positive update from Swiss bank UBS. Banks continued to hoard cash amid severe strain in the money markets.

Regulators said they would extend their ban on short selling of financial stocks that had been due to expire on Thursday.

The index of stocks placed on the SEC’s short-ban list, compiled by Bloomberg, fell 4.5 per cent, below the level when the ban started last month.

Semiconductor stocks took scant comfort from global sales figures. The sector fell 4.5 per cent even after Semiconductor Industry Association data showed sales rose 5.5 per cent in August from the previous year.

Big name technology companies, which have sustained heavy losses and are also widely held by hedge funds, continued their slide. Google and Apple lost 5.2 per cent to $390.49 and 8.3 per cent to $100.10, respectively.

Ebay tumbled 8.2 per cent to $19.15 after Morgan Stanley downgraded its recommendation on the internet auctioneer from “overweight” to “equal weight”.

Bucking the downward trend, Atmel jumped 34.2 per cent to $4.40 after Microchip Technology and ON Semiconductor made an unsolicited $2.3bn offer.

Constellation Energy rose 14.7 per cent to $27.23 after the Financial Times reported EDF was nearing a deal with private equity group KKR to trump Warren Buffett’s $4.7bn takeover.

Some defensive stocks – such as Kraft, up 0.3 per cent to $33.54 – escaped the worst declines.

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