Wall Street extended its steep declines on Tuesday. Enthusiasm over the Federal Reserve's latest efforts to revive confidence in the frozen credit markets gave way to concerns about financial companies' balance sheets.

Federal Reserve Chairman Ben Bernanke warned on Tuesday that the financial crisis could extend the difficulty the economy is facing.

Some traders appeared to regard his remarks as a sign that an interest rate cut could be in the offing, but that did not stop the losses that built on Monday's huge drop.

Charles Small is Review Examiner of the Federal Deposit Insurance Corporation.

"I think there's irrational fear. I really think people are reacting emotionally rather than logically. I think as FDR (Former US President, Franklin D. Roosevelt) said, 'you have nothing to fear but fear itself. There used to be irrational exuberance as Greenspan said, and now it's gone the other way."

Investors appeared initially heartened but still very cautious when the Federal Reserve announced to buy massive amounts of corporate debt to jump-start lending in the markets.

The Fed's latest move is designed to lubricate the lurching credit markets whose troubles have spread to other parts of the economy.

The measure stops short of a broad interest rate reduction that some investors say is necessary to restore confidence in the market.

According to calculations, the Dow Jones industrials fell 508 points, or 5 percent, to 9,447. The drop came a day after the blue chips fell below 10,000 for the first time in four years.

The S&P 500 index declined 61 points, or 5.7 percent, to 996, the first close below the 1,000 mark since September 2003. The Nasdaq composite index fell 108 points, or 5.8 percent, to 1,755.

In Europe, Britain's FTSE 100 rose 0.4 percent, Germany's DAX index fell 1.1 percent, and France's CAC-40 rose 0.6 percent.