Wall Street stocks dropped from 12-year lows Monday । on heightened fears about the financial sector after a new bailout announced for i nsurance giant AIG.

The Dow Jones Industrial Average slid below 7,000 points for the first time since 1997, tumbling 164.87 points (2.33 percent) to 6,898.06 at 1515 GMT.

The Nasdaq fell 23.77 points (1.73 percent) to 1,354.07 while the broadmarket Standard & Poor's 500 index shed 18.17 points (2.47 percent) to 716.92.

The market extended losses after a dismal week in which the Dow fell to its lowest level since 1997 and the S&P dropped to its weakest since 1996.

Market action came after the US government unveiled a fresh aid plan of 30 billion dollars for AIG to stave off collapse of the ailing insurance company as it revealed massive new losses.

"The market doesn’t like it because it shows how immersed the government has become in managing a controlled burn of this zombie organization that is considered too systemically important to die of natural causes," said Patrick O'Hare atBriefing.com.

The new plan is the fourth for AIG, which was the

world's biggest insurer before being hit with huge losses linked to the collapse of the US real estate market and the economic downturn.

Robert Brusca at FAO Economics said the new government rescue is "a bid to bolster the battered insurer, but its plan will expose US taxpayers to more financial risk. The new deal, the government's fourth for AIG, represents a nearly complete reversal from the one first laid out in midSeptember."

World markets were under pressure after British banking giant HSBC said it was seeking a huge capital injection to survive the global economic crisis.

HSBC revealed on Monday that it needs nearly 18 billion dollars of new capital to withstand the financial crisis and announced 6,100 job cuts after a profits collapse.

The bank reported a 70 percent plunge in annual net profit last year and said it hoped to raise 12.5 billion pounds (17.8 billion dollars, 14.2 billion euros) in a record British rights issue.

"Just as with AIG, the (HSBC share) offering provides investors with no clarity and no confidence that financial institutions are done raising capital," said Chris Lafakis at Economy.com.