US STOCKS-AIG, Wal-Mart spark sell-off on Wall Street

* AIG loss fuels fears of credit crisis fallout

* Wal-Mart sales outlook stirs consumer spending worries

* Jobless claims point to labor market weakness

* Dow down 1.9 pct; S&P 500 down 1.8 pct, Nasdaq down 1

pct (Updates to close)

By Kristina Cooke

NEW YORK, Aug 7 (Reuters) - U.S. stocks tumbled on Thursday after a big loss from insurer American International Group fueled fears of more fallout from the credit crisis and Wal-Mart's (WMT.N: Quote, Profile, Research) cautious sales forecast added to concerns about consumer spending.

The mood in the financial sector was rattled after AIG (AIG.N: Quote, Profile, Research), the world's largest insurer, posted its third consecutive quarterly loss of more than $5 billion as it wrote down bad mortgage-related investments. AIG's shares had their worst day in more than two decades.

Citigroup (C.N: Quote, Profile, Research) added to the sector's unease after the bank agreed to buy back more than $7 billion of illiquid auction-rate securities to settle charges it misled investors about the debt's risk. [ID:nN07477337]. American Express' (AXP.N: Quote, Profile, Research) shares fell after Moody's Investors Service said it may downgrade the credit card company's debt rating.  Continued...