NEW YORK, US - US stocks tumbled heavily on Wednesday as investors fretted over the health of corporate America as major companies began reporting their second quarter earnings amid economic uncertainty.

The share slide swept Wall Street, dragging down financial, technology and aviation stocks amid a broad selloff.

The blue-chip Dow Jones Industrial Average slumped a hefty 236.77 points (2.08 per cent) to close at 11,147.44. The benchmark index is down almost 16 per cent for the year.

The broad index is now in 'bear market' territory, representing a drop of 20 per cent from its peak hit last year.

The rout came after stocks had rallied a day earlier in the face of falling oil prices. New York-traded oil contracts held steady on Wednesday around US$136 (S$184.82) a barrel.

'The Dow Jones Industrial Average may have started the day in positive territory, but it certainly finished the day on a low note, thanks to concerns of the credit crunch's impact on earnings,' observed Mr Mark Fightmaster, a market analyst at Schaeffer's Research.

Analysts say the earnings of some companies, especially banks, will be pretty bleak as a widespread credit crunch, a lengthy housing market downturn and high oil prices continue to dent investor sentiment.

Stocks fell after the Fitch Ratings agency issued a report predicting that Merrill Lynch will likely post a fourth straight quarterly loss when it reports its second quarter earnings on July 17.

The credit rating agency said there were 'diminished expectations that Merrill's fixed income, currency and commodities operations will attain a sustainable level of core profitability in the near-term.' Merrill's shares lost a hefty 10 per cent to US$29.74.

Other industries are also struggling to offset the economic headwinds.

Major airlines and delivery firms are vying to cut costs in the face of high energy costs.

Northwest Airlines announced that it was cutting 2,500 jobs in a move it blamed on rocketing crude oil prices.

'Our fuel costs have more than doubled in the past year,' said Northwest's chief executive Mr Doug Steenland.

The airline's stock nosedived 16 per cent to US$6.30.

Freddie Mac and Fannie Mae, two large mortgage investment firms, saw their shares punished as concerns persisted over the distressed mortgage market. The firms' shares have taken a battering this week and some analysts believe they might have to raise fresh capital to help boost their finances.

Freddie Mac's shares plummeted 24 per cent to 10.26 dollars while Fannie Mae saw its stock slump 13 per cent to US$15.31.

General Electric, which is due to post its latest earnings Friday, finished 3.1 per cent weaker at US$27.19.

US Defence Secretary Robert Gates shook up interest in the defence industry as he announced the Pentagon was reopening a controversial US$35-billion contract to supply the air force with a new generation of air refuelling jets.

Gates said rivals Northrop Grumman and Boeing would be asked to resubmit bids as part of a revised process aimed at addressing criticism of a contract awarded to Northrop Grumman earlier this year.

Boeing's stock was 0.5 per cent lower at US$65.59 while Northrop Grumman declined 1.4 per cent to US$65.27.

Bond prices firmed as stock values sank. The yield on the 10-year US Treasury bond fell to 3.834 per cent from 3.880 per cent Tuesday and that on the 30-year bond declined to 4.428 per cent against 4.456 per cent.

Bond yields and prices move in opposite directions. -- AFP