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Shares tumbled late Tuesday after the head of AT&T suggested that consumers may be cutting back and Countrywide Financial denied that it was tumbling into bankruptcy.

The market was up modestly earlier in the day but was rattled by the warning from AT&T, the nation’s largest telephone company, and rumors that Countrywide, the nation’s largest mortgage company, might file for bankruptcy protection.

The Standard & Poor’s 500-stock index fell 1.84 percent, or 25.99 points, to 1,390.19, its lowest close since March 5.

The Dow Jones industrial average declined 238.42 points, or 1.86 percent, to 12,589.07, while the Nasdaq composite index dropped 58.95 points, or 2.36 percent, to 2,440.51.

With the exception of Monday, the S&P has fallen in all five sessions this year. It is down 5.3 percent for the year and 11.2 percent since hitting a high on Oct. 9, meeting the technical definition of a market correction.

In recent days, many investors have grown increasingly convinced that the problems in the housing market will drive the economy into a recession and that efforts to revive it through interest rate cuts or federal government policy may not be sufficient. (Investors in the futures markets are betting that the Federal Reserve will cut its overnight interbank lending rate by half a point, to 3.75 percent, when it meets at the end of the month.)

A statement by AT&T’s chief executive, Randall L. Stephenson, drew a strong response from the market because it suggested the weakness in the economy might start hurting profits of a broader range of companies aside from financial firms, retailers and home builders. Technology shares in the S&P, for instance, are down nearly 10 percent so far this year; telecommunications stocks are down 5.8 percent.

“The market is certainly going to struggle in the first quarter and a half to two quarters as the subprime thing continues to weigh on the economy,” said Bruce Bittles, chief market strategist at Robert W. Baird & Co. “And housing will likely not stabilize until the second half of the year.”

Underscoring the uncertainty, President Bush, who had been more optimistic than many investors, told reporters at the White House that the problems in the housing market would “take a while to work through.”

“I like the fundamentals; they look strong,” Bush said, “but there are new signals that should cause concern.”

On Friday, the Labor Department reported that the unemployment rate jumped to 5 percent in December, from 4.7 percent. On Tuesday, the National Association of Realtors said its pending home sales index, which tracks signings of sales contracts, fell 2.6 percent in November after increasing for much of the fall. Recent data on manufacturing has also indicated slowing growth.

Shares of Countrywide fell $2.17, or 28.4 percent, to $5.47 on Tuesday after the company issued a statement that said there was “no substance to the rumor that Countrywide is planning to file for bankruptcy.” The company has been dogged by rising defaults and foreclosures; its stock fell nearly 79 percent last year.