Wall Street closed lower on Friday after a tumultuous week in which the S&P 500 index experienced its worst performance since September 2002 as heightened credit market concerns battered stocks reports the Financial Times.

London saw all this year’s gains wiped out. There were also heavy falls in Asian stock markets, European stocks were lower and corporate debt markets saw further sell-offs.

The selling rounded off a week that finally saw equity traders waken to the growing problems in debt markets.

The heaviest stock selling on Thursday was sparked by news that banks had been forced to pull debt sales for two of the biggest private equity backed buy-outs in the market.

Chrysler, the US carmaker, failed to attract demand for loans valued at $12bn and Alliance Boots debt worth £5bn was left on banks’ balance sheets.

Fears about an end to the ­leveraged buy-out boom added to the expanding crisis in US mortgage markets, where one of the biggest US lenders said this week that problems in the risky subprime market were spreading to more conventional loans.

Mr Paulson said in an interview on CNBC television that both the mortgage lending and leveraged buy-out markets had been marked by excesses.

“I think we could use some more discipline. We are seeing a reassessment of risk and that is leading to a market adjustment,” he said, adding that it was “healthy” that risk was being ­repriced.

Mr Paulson said problems in the US mortgage sector should remain “largely contained”, but stressed “this is something that will take a while to make its way through the economy”. Stocks briefly rallied after Mr Paulson’s remarks but then resumed their descent.

By the close of trading in New York, the S&P 500 index was down 4.9 per cent for the week at 1,458.95 while the Nasdaq Composite Index was 4.7 per cent lower at 2,562.24. The Dow Jones Industrial Average was 4.2 per cent lower at 13,265.47 for the week.

News that the US economy had expanded at a 3.4 per cent annual rate and that core inflation moderated during the second quarter failed to improve sentiment.

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