NEW YORK (CNNMoney.com) — The stock selloff worsened near midday Tuesday as reports of slumping stocks in China and Europe and a steep decline in durable goods orders raised worries that the recent rally may be tapped out.

News that Vice President Dick Cheney was the apparent target in a Taliban suicide bombing attack in Afghanistan added to the morning concerns.

The Dow Jones industrial average (down 151.09 to 12,481.17, Charts) sank about 1 percent roughly two hours into the session, as did the broader S&P 500 (down 17.44 to 1,431.93, Charts) index. Both blue-chip averages have fallen for the last four sessions.

The Nasdaq (down 42.39 to 2,462.13, Charts) composite slumped 1.5 percent after having slid for the last two sessions.

Market selloff: Year of the bear?
Treasury bonds rallied as investors sought a safe place to park their money while the dollar fell.

Chinese stocks slumped 9 percent Tuesday - the worst one-day selloff in a decade - on concerns that the government would interfere to cool the speculation that drove the Shanghai market up 130 percent last year. (Full story).

Other Asian markets slumped in tandem. European shares also tumbled in late trade.

The slump in world markets exacerbated concerns that Wall Street is due for a selloff after a nearly eight-month rally that has sent the Dow industrials to record highs and the Nasdaq and S&P 500 to more than 6-year highs.

“The selloff certainly demonstrates somewhat starkly the inter-connectedness of stock markets around the world,” said Hugh Johnson, chief strategist at ThomasLloyd Global Asset Management.

“Markets can decline in one seemingly isolated part of the world and that decline can be transmitted to other parts of the world through the psychology,” he said.

More at CNN.com

Also in financial news:

Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities.

Analysts say the housing bust is pulling America into recession, citing a 14.4pc drop in housing starts

The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5bn (£5.4bn) to cover bad loans in the US.

The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market.

Low-grade BBB-rated securities - measured by the ABX index - have crashed from near par of 100 in early November to 72.5 this week.

Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown. “It’s a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults,” he said.

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