(By Salman - iStockAnalyst Writer)

US stocks tumbled on Monday after AIG's massive quarterly losses intensified worries over the health of the financial system.      

The Dow Jones Industrial Average tumbled 299.64 points or 4.24% to finish at 6,763.29. The S&P 500 sank 34.27 or 4.66% to 700.82. The Nasdaq Composite plunged 54.99 points or 3.99% to 1,322.85.

Early on Monday, American International Group Inc (NYSE: AIG) reported a fourth quarter loss of $61.7 billion or $22.95 a share- the biggest in corporate history of US. The troubled insurer posted a loss of $5.29 billion in prior year quarter. Meanwhile, the Treasury Department and the Federal Reserve Board announced on Monday revised rescue deal for the embattled company under which it will receive further $30 billion from the government. Shares of AIG closed unchanged at 42 cents.

The Sage of Omaha, Warren Buffett's comment that "the economy will be in shambles throughout 2009" also pressurized stocks.

Shares of financials were hammered. Citigroup (NYSE: C) sank 30 cents or 20% to $1.20. Bank of America (NYSE: BAC) plunged 32 cents or 8.10% to $3.63. JP Morgan & Chase & Co (NYSE: JPM) tumbled $1.69 or 7.40% to $21.16.Wells Fargo (NYSE: WFC) plummeted $1.26 or 10.41% to $10.84.Morgan Stanley (NYSE: MS) lost $1.59 or 8.14% to end at $17.95. Goldman Sachs (NYSE: GS) finished at $86.27, down $4.81 or 5.28%.

Early on Monday, PNC Financial Services Group Inc. (NYSE: PNC) announced that it would slash the quarterly dividend on its common shares to 10 cents from 66 cents. Shares of the company retreated $1.22 or 4.46% to $26.12.

Insurance stocks were battered. Hartford Financial Services Group Inc. (NYSE: HIG) slid 99 cents or 16.23% to $5.11. MetLife Inc. (NYSE: MET) dropped $1.95 or 10.56% to $16.51.

Shares of General Electric Co. (NYSE: GE) declined 91 cents or 10.69% to $2.01. On Friday, the diversified US firm cut its quarterly dividend by 68% to 10 cents a share from 31 cents.

Struggling US automaker General Motors (NYSE: GM) slumped 24 cents or 10.67% to $2.01.

Aluminum maker Alcoa Inc. (NYSE: AA) skidded 74 cents or 11.88% to $5.49. Shares of equipment maker Caterpillar (NYSE: CAT) lost $2.47 or 10.04% to finish at $22.14.

Among energy stocks, Exxon Mobil Corp. (NYSE: XOM) fell $2.99 or 4.40% to $64.91. Chevron Corp. (NYSE: CVX) declined $3.09 or 5.09% to $57.62.

Shares of International Paper Co. (NYSE: IP) decreased 57 cents or 10.02% to $5.12 after it said that it would slash quarterly dividends 2.5 cents a share from 25 cents.

On the earnings front, Echostar Corp. (NASDAQ: SATS) posted a fourth-quarter loss of $690 million, or $7.73 a share, compared to a loss of $45 million, or 51 cents a share in the year ago quarter. Revenue jumped to $496 million from $361 million. Shares of the company lost $1.44 or 8.79% to end at $14.94.

Meanwhile, chipmaker Spansion Inc (NASDAQ: SPSN) on Sunday filed for bankruptcy protection in a U.S. court.

Shares also retreated as dismal economic data dampened sentiment.

According to Commerce Department, construction spending fell 3.3% in January, worse than the consensus estimates of 1.5%.

The Institute for Supply Management said that its manufacturing index increased marginally to 35.8 from 35.6 in January. Economists had projected a reading of 33.8. A reading below 50 indicates contraction.

The US Commerce Department said that consumer spending climbed 0.6% in January, better than the 0.4% increase expected by economists. Personal income rose 0.4%. Economists had expected personal income to decrease 0.2% in the month.

European stocks settled with substantial losses. The U.K. FTSE slumped 204.26 points or 5.33% to close at 3,625.83. The German DAX and French CAC lost 3.48% and 4.46% respectively.

Asian stocks finished with steep losses. The Nikkei 225 plunged 288.27 points or 3.81% to 7,280.15. The Hang Seng index of Hong Kong tumbled 494.11 points or 3.86% to 12,317.46.

NYMEX crude oil for April delivery declined $4.39 to $40.37 settle at barrel.
 
Disclosure: Author does not own any of the stocks discussed here.