By Jason Simpkins

U.S. stocks plunged yesterday, fueling a sharp global decline, as a housing-market meltdown and fears of a swirling global credit crunch sent investors scurrying for the exits.

The Dow Jones Industrial Average dropped by as much as 450 points – its second-worse showing of the year – before closing down more than 310 points. A government reading showed a bigger-than-expected drop in new home sales, and the nation's top builders posted large losses due to the weak market. Investors seeking safe havens raced into government bonds: The 10-year Treasury note saw its yields plunge from 4.90% Wednesday to 4.79% yesterday.

The Nasdaq composite index dropped nearly 2.0% and the broader Standard & Poor’s 500 index skidded more than 2.4%.

The U.S.-led sell-off ignited declines overseas, causing initial minor losses in Europe to accelerate as the Dow plunged. France's CAC-40 fell 2.8%, Britain's FTSE 100 dropped 3.2% and Germany's DAX dropped 2.4%. In Japan, the Nikkei index plunged in early trading today and was down nearly 2.6% at press time.

New homes sold at an annual rate of 834,000 in June, down 6.6% from the revised rate of 893,000 in May. Sales are down 22.3% from a year ago.  As banks and mortgage lenders continue to get pummeled, doubts have arisen over whether or not the recent private equity boom will last, causing the market to take its biggest slide of the year.

Private equity has fueled the buyout boom, which has sent stock prices soaring into record territory – even in the face of tepid earnings and some real worries about the strength of the U.S. economy.

Trouble in the housing sector has rippled through the market fairly frequently in the past several months. The major stock indices have proved resilient, however, making quick recoveries from a number of sudden drop-offs.

This week has been an erratic one in U.S. markets. Stocks slid Tuesday amid a bevy of disappointing earnings reports and ongoing fear stemming from the housing slump, only to see the Dow pick up 68 points by close on Wednesday. Thursday’s plummet was the eighth straight session in which the market index has fallen after rising the day previous.

Now the Commerce Department has brought even more disconcerting data to the fore and only a day after the National Association of Realtors released a report detailing a drop off in the sale of existing homes. Investors’ worst fears have been realized and it’s time for the market to pay its dues.  

Countrywide Financial Corporation (NYSE:CFC), the country’s largest mortgage lender, is among the leaders in terms of plummeting stock prices. It has fallen nearly 20% in the past week alone, and is down 32% this year to date.  KB Home (NYSE: KBH) stock is down almost 40% on the year, and 15% in the past five days.  D.R. Horton (NYSE: DHI) was down as much as 3.5% on the day after reporting its first-ever quarterly loss. Its stock has dropped 36.5% on the year.

Higher corporate borrowing costs will certainly put a damper on the record pace of takeovers which had driven the market over 14,000 earlier this month. Fear that home sales and continued defaults in subprime loans will spur debt defaults and weigh heavily on corporate earnings is a legitimate concern as well.

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