Worries about the US housing market are persisting

The Dow Jones index slipped by about 220 points or 1.6% while the tech-heavy Nasdaq shed 1.9% - the biggest point losses since 13 March.

However analysts said that the retreat from near-record highs was "logical" as some investors took profits.

Struggles at firms linked to US housing were a reminder of the problems in the sector, analysts said.

Beyond sub-prime?

The Nasdaq closed down 1.89% at 2,639.86 points while the Dow Jones lost 226.47 points, 1.6% to 13,716.95.

The fall came after the Dow climbed above 14,000 points last week for the first time.

"It seems logically like the market needs to have some profit-taking," said Joe Ranieri, of US firm Canaccord Adams.

Earlier, European shares had also seen heavy losses, with the main markets in London, Paris and Frankfurt all losing more than 1.5%.

A large fall in quarterly earnings at Countrywide Financial, the largest US mortgage lender, saw its shares drop by more than 10%.

It had warned earlier in the year that it was struggling as thousands of its sub-prime borrowers battled with debt.

The sub-prime lending market - worth billions of pounds - involves lending to people with poor credit records at an interest rate premium.

"We expect difficult housing and mortgage market conditions to persist," chief executive Angelo Mozilo said.

Countrywide's profit warning had served as a reminder to investors of persisting troubles in the sub-prime market, analysts said, with some fearing it may spread wider than that.

"I think the market is now a little bit concerned that it is not just isolated to sub-prime," said George Goncalves, strategist at Morgan Stanley in New York.

Building materials company USG compounded worries about the industry, saying that the housing market was being burdened by an excess supply of new and used homes.

The firm, which supplies most US home builders said the market was entering the second year of "what is likely to be a multi-year downturn."

Meanwhile Apple shares slumped 6% amid speculation that its iPhone, which was launched in the US last month, had not been selling as well as had been predicted.

Chemical maker DuPont was the Dow's biggest loser, as it said that second-quarter profit growth was flat.