KEY POINTS:
All three major US stock indexes plunged more than 2 per cent on Tuesday after a record loss at Citigroup Inc and the worst showing for retailers in five years fueled fears that the economy was heading into a recession.
Citigroup, the largest US bank, slashed its dividend after writing down $18.1 billion for losses tied to subprime home loans and other risky debt, sending its shares down 7 per cent. That added to concerns the global credit crisis is far from over.
The picture for stocks grew grimmer after the government said retail sales unexpectedly fell in December to close out the weakest year at the cash register since 2002. Costlier energy and falling home prices depressed spending during the holiday shopping season.
Adding to the market's decline, shares of plane maker Boeing Co fell 4.7 per cent after The Wall Street Journal reported the company may delay its 787 programme again.
Investors were also unimpressed by new offerings from Apple unveiled at the annual Macworld convention in San Francisco. Apple's shares slid 5.4 per cent.
"It's a perfect storm of negativity today," said Michael James, a senior trader at Wedbush Morgan in Los Angeles. He pointed to the combination of dismal results from Citigroup, the poor retail sales figures, Boeing news and the lack of a "wow" factor from Apple.
Retail sales figures are considered a key benchmark because consumer spending accounts for more than two-thirds of US economic activity.
The Dow Jones industrial average fell 277.04 points, or 2.17 per cent, to close at 12,501.11, to its worst level since April.
The Standard & Poor's 500 Index ended down 35.30 points, or 2.49 per cent, at 1,380.95. The Nasdaq Composite Index dropped 60.71 points, or 2.45 per cent, to close at 2,417.59.
Citigroup shares slid 7.3 per cent to $26.94. In order to help shore up its balance sheet, Citigroup said it plans to raise $14.5 billion from outside investors and cut 4,200 jobs.
Shares of Merrill Lynch & Co, the world's largest brokerage, which also announced a plan on Tuesday to raise capital, were down 5.3 per cent at $53.01. Shares of Bank of America Corp, the No. 2 US bank, fell 3.4 per cent to $37.88.
Apple Inc fell 5.4 per cent to $169.04, and was the biggest drag on the Nasdaq. Boeing shares ended down 4.7 per cent at $77.86, its worst closing percentage decline since June 2003 and were the top drag on the Dow.
The latest retailer with disappointing news was home goods store Williams-Sonoma, which cut its outlook on Tuesday after a weak holiday sales season. Williams-Sonoma shares slid 9.9 per cent at $20.01.
Energy stocks also pushed down the market after US crude oil futures fell 2.2 per cent on fears a recession would dent demand. Oil field services company Schlumberger Ltd's shares lost 6.9 per cent to $88.93 and Valero Energy fell 8.3 per cent to $54.90. Exxon Mobil led both the S&P and the Dow lower, dropping 2 per cent to $89.02.
Trading was moderate on the New York Stock Exchange, with about 1.8 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.38 billion shares traded, ahead of last year's daily average of 2.17 billion.
Declining stocks were outnumbering advancing ones by a ratio of about 3 to 1 on the NYSE and on Nasdaq.
- REUTERS
