Stocks tumble as Wall Street worries about financials

Wall Street extended its steep declines Tuesday as enthusiasm over the Federal Reserve’s latest efforts to inject frozen credit markets with a dose of much-needed confidence gave way to concerns about financial companies’ balance sheets. Trading remained fractious, with the Dow Jones industrial average losing more than 300 points.

Federal Reserve Chairman Ben Bernanke warned in a speech on the economy Tuesday that the financial crisis could extend the difficulty the economy is facing. Some traders appeared to regard his remarks as a sign that an interest rate cut could be in the offing, but that did not stanch the losses that built on Monday’s huge drop.

Investors appeared initially heartened but still very cautious following the Fed’s announcement that it plans to buy massive amounts of corporate debt to jump-start lending in the markets where many companies turn for short-term loans. The evaporation of faith the loans will be repaid has lenders weary and is making it more difficult and expensive for businesses and consumers to borrow money.

Credit markets showed some signs of easing as demand for safe-haven investments decreased. Credit markets seized up last month after Lehman Brothers Holdings Inc. declared bankruptcy and the government stepped in to rescue insurer American International Group Inc.