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More financial woes and fear that the worst is yet to come helped push banks and the overall market sharply lower Friday.

Global losses from mortgage and other credit problems will likely top $600 billion, UBS said. That’s four times higher than the $150 billion or so that financial companies have marked down since the subprime debacle unfolded.

A separate study presented at a University of Chicago event forecast losses will hit $400 billion.

Meanwhile, American International Group () sold off after the insurance giant suffered an unexpected loss and a big write-down while predicting tough times.

Also, the latest economic data showed consumer spending stalling and a key factory gauge signaling contraction.

“Right now we’re at the vortex of negative news,” said Brian Bethune, economist at Global Insight. “There’s a lot of downward pressure on the economy coming from problems in the housing market and credit conditions.”

The Dow fell 2.5% and the S&P 500 lost 2.7%, erasing gains from earlier in the week. The Nasdaq fell 2.6% to a 17-month closing low. The SPDR Financial ETF fell 3.3%.

The market’s roller coaster ride won’t let up until investors believe housing’s bottom and bank write-offs from subprime mortgage crisis are within sight, say observers.

“The market is obviously getting into some pretty serious up-and-down, schizophrenic kind of motion,” Bethune said.

Uncertainty over losses for banks, insurers and other financial outfits slimed by subprime have kept Wall Street on edge, says Stephen Stanley, chief economist at RBS Greenwich Capital.

“The markets are very skittish right now about credit losses,” he said. “People have ratcheted up their fears about financial market instability, the trajectory of credit losses as well as the economy.”

Stormy Waters

AIG said Friday that the subprime housing debacle had thrown it into “uncharted waters” that were likely to remain choppy through 2008.

The insurance giant lost a surprise $5.29 billion in the fourth quarter, AIG said late Thursday. It also wrote down $11.1 billion worth of credit swaps.

AIG shares fell 7% Friday.

Huge losses from home loan finance giants Fannie Mae () and Freddie Mac () earlier in the week added to concerns, says Stanley.

“There’s a sense that until we can reliably or at least have some glimmer of hope that home prices are going to stabilize, there’s no way financial players can start to draw a floor under where the aggregate losses are going to be,” he said. “Right now it’s just an environment of fear and retrenchment. People just want to avoid getting caught up in a bad situation.”

Fannie Mae on Wednesday said it lost $3.55 billion in the fourth quarter, far worse than expected. Freddie Mac on Thursday reported a wider-than-expected, fourth-quarter loss of $2.5 billion.

Fannie and Freddie both cut their housing outlooks. Freddie expects a loss of $2.2 billion in 2008 and $2.9 billion next year.

Ross To The Rescue

Stocks have swooned and soared several times this year on fears of a bond insurer meltdown and hopes for relief.

Rescue plans have been floated for MBIA () and Ambac Financial () amid fears they’ll be unable to pay claims on subprime-related debt.

If MBIA and Ambac lose their top-notch credit ratings, the value of bonds and securities they insure would fall, increasing losses of banks and other firms.

Billionaire investor Wilbur Ross, who specializes in distressed sectors, said Friday he’ll pony up to $1 billion in a smaller, more stable bond insurer, Assured Guaranty. () Assured’s shares rose 13% to 25.65.

That makes it less likely Ross will shore up Ambac or MBIA.

“He’s probably not getting involved with some of the other big names that are desperately seeking capital right now to preserve their credit ratings,” Stanley said.

Ambac fell 6% on reports that bailout talks had stalled. Moody’s said it had nearly raised enough cash to save its credit rating. Late Friday, the monoline slashed its dividend.

MBIA lost 8% after forecasting more write-downs.

Until the housing mess clears up, the economy appears in trouble.

“It is difficult to imagine economic and financial improvement until a bottom in housing comes into view,” wrote Peter Kretzmer, a Bank of America economist, in a research note Friday.

If you bought a carton of eggs recently, you may have been bowled over by sticker shock. The consumer price index for eggs is up 34.7% from a year ago, according to the Bureau of Labor Statistics. In January, a dozen Grade A large eggs cost $2.18, up from $1.55 in 2007. The average retail price of eggs in 2007 climbed 28.3% to $1.68 a dozen, from $1.31 in 2006. All food prices are up, thanks to higher commodity prices and increased energy costs. But eggs rose more than any other food...