NEW YORK (AP) — A stunning makeover of the Wall Street landscape sent stocks falling precipitously yesterday, with the Dow Jones industrials sliding 500 points in their worst point drop since the September 2001 terrorist attacks. Investors reacted badly to a shake-up of the financial industry that took out two storied names: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.

Stocks also posted big losses in markets across much of the globe as investors absorbed Lehman's bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. While those companies' situations had reached some resolution, the market remained anxious about American International Group Inc., which is seeking emergency funding to shore up its balance sheet.

A faltering of the world's largest insurance company likely would have financial implications far beyond that of Lehman, the largest US bankruptcy in terms of assets.

The swift developments that took place Sunday are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt. For the first part of yesterday's trading, the market was falling, but in a largely orderly fashion as investors seemed to draw some relief from the resolution of Lehman's problems.

But as the session wore on, and there was no word about AIG, the market's suffered another bout of fear that the ongoing credit crisis will continue to devastate the financial sector, and selling accelerated in the final hour. Selling then took on more momentum as stock indexes broke through levels seen at the market's earlier lows in July, an ominous sign for some traders.

Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by $60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions that may be forced to further write down the value of their own debt assets. Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.

AIG's troubles are worrisome for some investors because of the company's enormous balance sheet and the risks that troubles with that company's finances could spill over to the companies with which it does business. AIG, one of the 30 stocks that make up the Dow industrials, fell $7.38, or 61 percent, to $4.76 Yesterday as investors worried that it would be the subject of downgrades from credit ratings agencies.

"People sense that there is still a lot more pain to be felt," said Ryan Larson, senior equity trader at Voyageur Asset Management, a unit of RBC Dain Rauscher.

The market was expected to remain fractious when trading resumes today. Besides its continuing concerns about AIG, Wall Street will be waiting anxiously for the Federal Reserve's regular policy-making meeting. The central bank is widely expected to keep rates steady, but the market will be looking for signs from the Fed that it is willing to lower rates amid the nation's continuing economic problems and also because the price of oil has retreated sharply from its highs of $147 in mid-July. The drop in oil gives the inflation-wary Fed more room to manoeuvre.

According to preliminary calculations, the Dow fell 504.48, or 4.42 percent, to 10,917.51, moving below the 11,000 mark for the first time since mid-July. It was the worst point drop for the Dow since it lost 684.81 on September 17, 2001, the first day of trading after the terror attacks.

It was also the sixth-largest point drop in the Dow, just behind the 508.00 it suffered in the October 1987 crash.

Broader stock indicators also fell. The Standard & Poor's 500 index declined 58.74, or 4.69 percent, to 1,192.96 — also its biggest drop since 9/11 and the first time it closed below 1,200 in three years.

The Nasdaq composite index fell 81.36, or 3.60 percent, to 2,179.91; it was its worst percentage and point loss since January 4.

Declining issues overwhelmed advancers on the New York Stock Exchange, where 164 stocks rose compared with 3,064 that fell. Volume came to a moderate 1.8 billion shares.

Oil closed below $100 for the first time in six months as investors worried that a slowing economy would hurt demand. Light, sweet crude fell $5.47 to settle at $95.71 on the New York Mercantile Exchange. Oil is down sharply from its mid-July highs when it hit a record over $147 a barrel.

Bond prices surged as investors fled to the security of government debt.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.42 percent from 3.72 percent late Friday. The dollar was lower against other major currencies, while gold prices rose.