US stocks extended earlier losses after chief UN arms inspector Dr Hans Blix said Iraq cooperated in providing inspectors with access but seems "not to have genuinely accepted disarmament demands."
The Dow Jones fell 140.2 points, or 1.72 per cent, to 7,990.81, going below 8,000 for the first time since October 15th, 2002. The broad S&P 500 lost 13.87 points, or 1.61 per cent, at 847.53.
The US stock market had briefly poked into positive ground after a positive housing report but it quickly sank back into negative ground later in the morning.
"The markets are experiencing extreme volatility," said Mr John Person, head financial analyst at Infinity Brokerage Services. "UN inspectors will probably get the time which delays the inevitable action and further undermines the confidence of the US ability to follow through with invading Iraq."
The UN report comes a day before President Bush's State of the Union speech, in which he will try to rebuild foreign support for a potential war on Iraq as well as answer growing doubts from the US public. Global stock markets slumped as uncertainty over the threat of war rattles the world.
"Global investors have lost confidence in the dollar and economic stability is questioned," Mr Person said.