Wall Street plunged last night, in its second worst sell-off this year, amid renewed fears that troubles in the United States’ battered sub-prime mortgage market could spread to mainstream markets and the wider economy.

Nervous traders marked down share prices after figures from the Mortgage Bankers Association showed mortgage delinquencies and foreclosures climbing steeply in the last quarter of 2006.

Accredited Home Lenders Holding Co became the latest player in mortgages to the poor and credit-blemished to admit that it was grappling with a liquidity shortfall.

Shares in New Century Financial Corporation, one of the biggest sub-prime lenders, which is facing criminal and civil investigations, were suspended. Concerns about New Century’s accounting were exacerbated when it admitted that it owed Credit Suisse $1.4 billion (£725 million), and not the $900 million previously reported.

So far about 30 sub-prime lenders in the US have folded. Mainstream lenders have lent them, and the securitised mortgage vehicles created by them, tens of billions of dollars.

The Dow Jones industrial average closed down 242.60, or 1.97 per cent, at 12,076.00 last night. The broad-based S&P 500 slid 2.04 per cent. Earlier, in London the FTSE 100 closed 72 points lower at 6,161. The US Treasury tried to calm the jitters. Anthony Ryan, Assistant Treasury Secretary, said the sub-prime problems were “for the most part fairly well contained”.

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