March 1, 2008 — US stocks tumbled, capping the market’s fourth-straight monthly drop, after a report showed business activity fell to the lowest level since 2001 and UBS said losses in credit markets may top $600 billion.

American International Group Inc., the world’s largest insurer, declined the most in two weeks after posting the widest quarterly deficit in its 89-year history.

The S&P 500 fell 37.05 points, or 2.7 percent, to 1,330.63, its biggest drop since Feb. 5. The Dow Jones industrial average slid 315.79, or 2.5 percent, to 12,266.39. The Nasdaq composite lost 60.09, or 2.5 percent, to 2,271.48.

The S&P 500 extended its February decline to 3.5 percent after the National Association of Purchasing Management-Chicago said its business barometer contracted as production and employment weakened, boosting concern that the worst earnings slump in six years will continue. The four-month losing streaks for the S&P 500 and Dow are the longest since 2002.

AIG tumbled $3.29, or 6.6 percent, to $46.86 after posting a fourth-quarter net loss of $5.29 billion, or $2.08 a share, following an $11.1 billion writedown on investments linked in part to subprime mortgages. AIG said it expects more writedowns this year.

“Fridays are tough days,” because investors don’t want to be long stocks in case more bad news is reported over the weekend, said David Goerz, chief investment officer of Highmark Capital Management, which oversees $22 billion in San Francisco. “The news with AIG just put everybody in a foul mood.”

Credit-market losses will climb to at least $600 billion from about $160 billion written down so far as investments funded with borrowed money are unwound, UBS credit strategist Geraud Charpin wrote in a note to clients.

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