New York- Major US stock indices were trading lower Tuesday morning, after turmoil in the financial sector on Monday led to the worst day on Wall Street since the September 2001 terrorist attacks.

Stocks were a little more stable Tuesday. The Dow Jones Industrial Average fell 150 points in early trading, but had recovered much of the early loss within an hour of opening. The Dow plunged more than 500 points, or 4.1 per cent, on Monday.

The broader Standard & Poor's 500 was down as much as 1.8 per cent in early trading, after plunging 4.7 per cent Monday.

Financial shares were in disarray after Lehman Brothers Holdings Inc declared the largest bankruptcy in US history on Monday, while Bank of America Corp acquired brokerage firm Merrill Lynch & Co.

The Federal Reserve Board could lower interest rates at a scheduled meeting Tuesday afternoon. In a bid to keep financial firms afloat, the Fed injected 50 billion dollars of reserves into the banking system early Tuesday.

The US central bank had already added 70 billion dollars in temporary loans to banks on Monday through its existing lending facilities - the largest one-day injection since September 2001.

All eyes on Tuesday were on American International Group Inc (AIG), the largest US insurer, which has been frantically searching for an emergency capital injection of as much as 75 billion dollars in a bid to stave off insolvency.

AIG's credit ratings were downgraded by S&P and Moody's Investors Service on Tuesday. The company was in ongoing talks with private lenders and the Federal Reserve, which has so far refused to offer temporary financing that could give AIG time to sell off assets.

AIG's share price fell another 70 per cent Tuesday morning but had since recovered some of the early losses. (dpa)