NEW YORK (AP) - Wall Street tumbled yesterday as investors grappled with renewed worries about the soundness of the financial sector. The major indexes fell more than two percent, including the Dow Jones industrial average, which lost more than 230 points.

While many financial services companies logged steep declines during the session, government-sponsored lenders Freddie Mac and Fannie Mae were among those hardest hit. Investors are worried that the mortgage finance companies will have to sell more shares than anticipated to compensate for losses from the housing slump. Merrill Lynch & Co. also dropped, after Fitch Ratings put its long-term credit default rating on watch for a possible downgrade.

With dismal bank and lender earnings expected in the coming weeks, investors were unable to keep buying a day after stocks, including financials, had logged sharp gains. Investors are bracing for financial companies to take another series of major credit-related write-downs, but the uncertainty about how large they'll be is weighing on the market, said Scott Wren, senior equity strategist at Wachovia Securities.

"As we go into earnings season, it's going to be much of the same as the first quarter," Mr. Wren said. "Financials are going to suffer the worst comparisons again; consumer discretionary earnings are going to be down, too."

Selling accelerated amid light volume, which tends to skew price moves.

Meanwhile, oil remained a concern although it had dropped by more than $9 a barrel over the last two days. Crude fluctuated before settling up a penny at $136.05 a barrel on the New York Mercantile Exchange.

According to preliminary calculations, the Dow fell 236.77, or 2.08 percent, to 11,147.44.

The Standard & Poor's 500 index fell 29.01, or 2.28 percent, to 1,244.69, while the Nasdaq composite index fell 59.55, or 2.6 percent, to 2,234.89.

The pullback left both the Dow and S&P 500 back in bear market territory, with both indexes having logged declines of more than 20 percent since their October highs.

Declining issues outnumbered advancers by nearly two-to-one on the New York Stock Exchange, where volume came to 1.49 billion shares compared with 1.73 billion shares traded on Tuesday.

Bond prices edged higher yesterday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.81 percent from 3.89 percent late on Tuesday.

The dollar fell against other major currencies. Gold prices rose.

"Nervousness breeds volatility," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. "It's a challenging environment."

He contends investors are hesitant to buy before getting a better read on the economy.

Mr. Conroy said eventually, investors will start jumping in again - but it is unlikely to happen until the market gets through more second-quarter earnings and starts to see signs of a pick-up in the housing market.

"That would give the financials a platform to stand on," he said.

Freddie fell $3.20, or 24 percent, to $10.26, while Fannie fell $2.31, or 13 percent, to $15.31.

The two companies also dragged the broader stock market lower on Monday as worries arose about their cash levels.

Merrill Lynch fell $3.03, or 9.3 percent, to $29.74.

"I think that news is really causing tarnish in the marketplace," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc., referring to Merrill Lynch.

A negative analyst note about Cisco Systems Inc. weighed on the technology sector. After hitting a new 52-week low of $21.54, Cisco ended down $1.30, or 5.7 percent, at $21.58 after an RBC Capital Markets analyst cut his price target on the network equipment maker.

The CEO recently said technology spending will recover later than the company originally thought.

In other corporate news, Northwest Airlines Corp. said it will cut 2,500 jobs, or about eight percent of its work force, and begin charging $15 to check a single piece of luggage in an attempt to offset high oil prices. Shares dropped $1.17, or 16 percent, to $6.30.

The Russell 2000 index of smaller companies fell 18.97, or 2.8 percent, to 663.75.

Stock markets overseas rose. Japan's Nikkei stock average edged up 0.15 percent. Britain's FTSE 100 rose 1.64 percent, Germany's DAX index rose 1.3 percent and France's CAC-40 rose 1.5 percent.