Wall Street slides on bank worries, retail sales

US stocks fell to six-week lows today on worries about steeper losses at banks worldwide and as US retail sales data pointed …

US stocks fell to six-week lows today on worries about steeper losses at banks worldwide and as US retail sales data pointed to a deepening recession.

The S&P 500 and Nasdaq tumbled more than 3 per cent, and all 30 Dow stocks were in the red, including Citigroup. The bank shed more than 23 per cent as investors and analysts worried whether the bank can be profitable as it unravels its business model. It is expected to post a multibillion-dollar loss this week.

Fears about the banking sector were exacerbated after Morgan Stanley analysts forecast HSBC, Europe's biggest bank, is likely to halve its dividend and may need to raise up to $30 billion of capital, while Germany's Deutsche Bank said it lost more than $6 billion last quarter.

Sales at US retailers fell 2.7 per cent in December as the economic slowdown made consumers cut back on spending during retailers' crucial holiday selling period.

Consumer spending accounts for about two-thirds of US economic activity, making it a key pillar of corporate profits.

The Dow Jones industrial average fell 248.42 points, or 2.94 per cent, to 8,200.14. The Standard & Poor's 500 Index gave up 29.17 points, or 3.35 per cent, at 842.62. The Nasdaq Composite Index lost 56.82 points, or 3.67 per cent, to 1,489.64.

The day's declines put another wrench in the market's attempt to recover from the November bear market low. The broad S&P 500 had gained more than 20 per cent from that level, but is now up only close to 14 per cent. It was the sixth straight day of declines for the Dow, racking up losses of 815 points, or 9 per cent.

The S&P financial index was down 5.7 per cent. Since the start of the year, the index has managed only two up days. Citigroup was down 23.2 per cent at $4.53 after a deal by the embattled bank to sell a controlling stake in its crown jewel, the Smith Barney retail brokerage unit, to Morgan Stanley for $2.7 billion.

Analysts speculate the Smith Barney sale is a precursor to a break-up of Citigroup and that the bank must be urgently seeking to replenish capital due to mounting losses.

Citigroup is due to report its results on Friday, after moving up the reporting date, a day after JPMorgan Chase & Co is due to post its results, after also after moving up its date. JPMorgan fell 1.7 per cent to $25.91.

The S&aP retail index fell 3.6 per cent on worries cash-strapped consumers spooked by the recession will remain unwilling to buy.

Energy shares also tumbled, taking oil's lead as US crude fell 50 cents to $37.28 a barrel on rising inventories and weakening demand from the United States, the world's biggest energy consumer. Exxon Mobil and Chevron were among the Dow's biggest drags, falling 3.6 per cent to $75.10 and 3 per cent to $69.69, respectively.

The Federal Reserve's anecdotal Beige Book report on the economy added to the sour picture, showing the economy weakened further into the opening days of the new year.

Tax and domestic help troubles surrounding Treasury secretary-nominee Timothy Geithner further dampened investor sentiment, but President-elect Barack Obama said he expects Geithner to be confirmed. Geithner would be Obama's point man on efforts to combat the financial crisis.

Trading was moderate on the New York Stock Exchange, with about 1.42 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq about 1.94 billion shares traded, below last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones on the NYSE by 2,793 to 318 while decliners beat advancers on the Nasdaq by about 2,263 to 477.

Reuters