Stocks plunged yesterday, driving the Dow Jones industrials down more than 240 points in their second-biggest drop of the year, as troubles piled up for subprime lenders.

Investors, bracing for a wilting economy, fled the already deflated subprime mortgage sector on more news that lenders New Century Financial Corp., Accredited Home Lenders Holding Co., and General Motors Acceptance Corp.’s residential unit are facing financial problems. Bolstering the belief that the struggles are widespread, the Mortgage Bankers Association said new foreclosures surged to an all-time high in the last quarter of 2006.

The subprime lending worries, coupled with anxiety over the Commerce Department’s report yesterday that American retailers eked out a meager 0.1% rise in sales last month, knocked down all three major stock indexes about 2%.

“The market’s still jittery, and they’re starting to get full-blown concerns over a bleed in the larger subprime mortgage market,” a portfolio manager of the Kelmoore Strategy Funds, Matt Kelmon, said.

The subprime market is a relatively small sector of the American economy, Kelmon noted. Yesterday’s selling was accentuated by options expiring soon and by volatility that has increased since the market’s big plunge two weeks ago — a 416-point drop in the Dow that was caused partially by the escalating distress among subprime lenders, who provide mortgages to people with poor credit.

The Dow fell 242.66, or 1.97 %, to 12,075.96. The blue chip index is now down about 710 points, more than 5%, from its record close reached February 20, leading many investors to believe that the market’s correction is not over.

The Dow is still above the low for the year reached March 5 and has yet to slip below the 12,000-level, which it reached for the first time in October.

Broader stock indicators also fell by their largest amounts since February 27. The Standard & Poor’s 500 index fell 28.65, or 2.04%, to 1,377.95, and the Nasdaq composite index slid 51.72, or 2.15%, to 2,350.57.

Trading collars were triggered yesterday afternoon when the New York Stock Exchange Composite index lost more than 180 points. The collars put a chokehold on certain orders, forbidding transactions that capitalize on discrepancies in prices.

Subprime lending jitters and sluggish retail sales drove up bond prices. The yield on the benchmark 10-year Treasury note fell to 4.50% from 4.56% late Monday.

The subprime worries have been mounting for weeks now, but came to a head when the New York Stock Exchange took steps to delist shares of New Century, which said yesterday that the Securities and Exchange Commission would be probing accounting errors that inflated its loan portfolio.

“Investors are poking around to see how much rotted wood there is here,” the chief investment officer for Harris Private Bank, Jack Ablin, said. “It looks like the notion was subprime was contained, and now we’re starting to see that maybe this problem has moved into other areas of the market. That’s causing investors great concern.”

Accredited Home contributed to the anxiety after it said it is in need of cash. Its shares plunged $7.43, or 65%, to $3.97.

Wall Street sold off further when the Mortgage Bankers Association’s quarterly report on the mortgage market seemed to confirm investors’ worries that the entire sector is struggling and could weaken further: not only did new foreclosures hit a record high in the fourth quarter of last year, but late mortgage payments soared to a 3-year high.

Investors trying to gauge how far problems in the subprime sector have spread pounced on comments from Goldman Sachs Group Inc. The investment bank said that while the subprime sector showed “significant weakness,” the broader credit environment “remained strong.” Goldman Sachs fell $3.57 to $199.03, despite record first-quarter profit thanks to strong revenue from trading and investment banking.