(By Salman - iStockAnalyst Writer)

US stocks finished with steep losses on Tuesday on mounting worries over the health of the banking system.

The benchmark indexes finished within striking distance of their three month low. The Dow Jones Industrial Average slumped 297.81 points or 3.79% to finish at 7,552.60. The S&P 500 shed 37.67 points or 4.56% to 789.17. The Nasdaq Composite dropped 63.70 points or 4.15% to 1,470.66.

Economic data added to the woes. The New York Federal Reserve Bank said on Monday that manufacturing activity in the New York area contracted at a record pace in February as Empire State Manufacturing index fell to negative 34.7 in February from negative 22.2 in January.

Financials suffered a crushing blow on Tuesday. Bank of America (NYSE: BAC) sank 67 cents or 12.03% to $4.90.Citigroup Inc. (NYSE: C) plunged 43 cents or 12.32% to $3.06. J.P Morgan (NYSE: JPM) plummeted $3.04 or 12.31% to $21.65. Shares of American Express Co. (NYSE: AXP) tumbled $1.78 or 11.31% to $13.96. Wells Fargo & Company (NYSE: WFC) shed $2.07 or 13.13% to end at $13.69.

In a complaint filed early Tuesday in U.S. District Court in Dallas, the Securities and Exchange Commission charged billionaire R. Allen Stanford and other executives at his massive financial services company, Stanford Financial Group, with operating a massive fraudulent investment scheme.

General Motors (NYSE: GM) lost 32 cents or 12.80% to finish at $2.18. The struggling US automaker is supposed to submit the restructuring plan to federal government today.

Alcoa Inc. (NYSE: AA) slumped 73 cents or 9.76% to $6.75.

Among energy stocks, Exxon Mobil (NYSE: XOM) slid $3.31 or 4.44% to $71.28. Chevron Corp. (NYSE: CVX) declined $3.55 or 5.09% to $66.18.  

Home improvement retailer Home Depot Inc. (NYSE: HD) retreated $1.28 or 6.03% to $19.94.

Equipment maker Caterpillar (NYSE: CAT) finished at $28.98, down $1.96 or 6.33%.

Diversified US firm, General Electric (NYSE: GE) fell 63 cents or 5.51% to $10.81.

Meanwhile, U.S. President Barack Obama signed the massive $787 billion economic stimulus bill into law on Tuesday.

Early on Tuesday, Wal-Mart Stores Inc. (NYSE: WMT) said that its fourth-quarter net income fell 7.4% to $3.79 billion, or 96 cents a share, from $4.1 billion, or $1.02 a share, in the prior year quarter. On an adjusted basis, the retail giant earned $1.03 a share, beating the average analyst estimates of 99 cents. Revenue rose 1.7% to $109.1 billion. Shares of the company rose $1.71 or 3.68% to $48.24.

Sirius XM Radio Inc. (NASDAQ: SIRI) surged 5 cents or 52.53% after Liberty Media Corp. (NASDAQ: LINTA) announced on Tuesday that it has agreed to invest $530 million in struggling the satellite radio company in the form of loans.

Trump Entertainment Resorts Inc. (NASDAQ: TRMP), the casino firm founded by Donald Trump file,d for Chapter 11 bankruptcy protection on Tuesday.

European stocks settled down. The U.K. FTSE retreated 100.62 points or 2.43% to close at 4,034.13. The German DAX and French CAC dropped 3.44% and 2.91% respectively.

Asian stocks finished with sharp losses. The Nikkei 225 fell 104.66 points or 1.35% to 7,645.51. The Hang Seng index of Hong Kong slumped 510.48 points or 3.79% to 12,945.40.

NYMEX crude oil for March delivery declined $2.59 or 6.9% to settle at $34.92 a barrel.

Disclosure: Author does not own any of the stocks discussed here.