Shares on Wall Street fell yesterday after a day of turbulence and conflicting signals caused by losses in Asian and European stock markets, a strengthening yen and jitters about mortgage defaults in the US.

The Dow Jones industrial average finished down 63.69 points, or 0.52 per cent, at 12,050.41 and the Nasdaq Composite Index lost 27.32 points, or 1.15 per cent, at 2,340.68. Bond prices fell, with the yield on the benchmark 10-year Treasury note at 4.51 per cent, up from 4.50 per cent late on Friday. The dollar was higher against other major currencies except for the yen.

The yen strengthened against the dollar for the third consecutive session, prompting fresh fears about the erosion of "carry trades", in which investors borrow in low-yielding currencies and use the proceeds to invest in markets with higher returns.

Sub-prime mortgage lenders saw their shares tumble as news of a federal investigation into New Century Financial, the third biggest sub-prime lender, sent its shares down by 66.5 per cent and fuelled fears about the sector.

A report from the Institute of Supply Management that showed the service industries growing at a slower pace than expected last month also affected investors' confidence.

The service industries covered by the report represent about 80 per cent of US economic activity, and were expected to drive economic growth in 2007.

Weakness in the motor and housing industries hit the manufacturing sector.

New Century, one of the largest lenders to high-risk borrowers in the US, said last Friday that it is the subject of a criminal inquiry into its accounting and trading in its shares.

The company acknowledged that a failure to persuade its banks to ease their financing terms could prompt its auditors to warn of "substantial doubt" over its ability to remain in business. With a growing number of sub-prime borrowers delinquent or in default, the five biggest firms catering to high-risk borrowers each saw their share price fall by more than 25 per cent yesterday.

Falling property prices and higher interest rates have hit borrowers who had been relying on higher home prices to refinance mortgages if they fell behind on payments.