Disappointing holiday shopping numbers and Citigroup's first-ever quarterly loss tore through the stock market Tuesday, sending shares of retail and banking stocks well lower while all 30 Dow components traded to the negative side.
The Dow Jones Industrial Average fell 277.04 points, or 2.17 percent, 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 percent, at 1,380.95. The Nasdaq Composite Index dropped 60.71 points, or 2.45 percent, to close at 2,417.59.
Citigroup announced a writedown of as much as $18.1 billion and potential layoffs of up to 24,000 due to exposure to bad subprime mortgages, while the government reported dismal December holiday sales in the retail sector.
The rout spread through the broader market, with only pockets of resistance, and there was fear that with more earning reports on tap through the week for the beleaguered financial sector that it could be a bloody week on Wall Street.
There was hope, though, that an impending interest rate cut from the Fed and investors' resistance to further bits of bad news would stave off a steeper fall for the market.
"The market has gotten to the point where it is oversold. It may sell off to the close today, but the pattern has been over the last few months that Monday and Tuesday usually are bad and it rallies through the rest of the week," said Michael D. Cohn, of Atlantis Asset Management.
Earnings reports loom for JP Morgan , Merrill Lynch, Wells Fargo and others in the sector with exposure to bad bets on subprime mortgages. But there was hope that the market was bracing for additional writedowns and would not sell off as earnings unfolded over the course of the week.
"That's not to say that there's not going to be some bad talk on the earnings front. It's expected at this point that earnings are going to be bad, and I think that's being priced into the market," Cohn said. "What you may find through the rest of the week is the market generally shrugs off that news."
Boeing, another Dow component, fell sharply after the Wall Street Journal reported that the company is close to announcing a further delay to its 787 Dreamliner.
But there was even more trouble for financials as US Bancorp , the sixth-largest U.S. bank, said fourth-quarter profit fell 21 percent, hurt by losses from loans and money market mutual funds, and a legal settlement.
And financial services company State Street reported lower fourth-quarter net income after it set aside millions for legal costs tied to mortgage securities losses. Shares were off more than 4 percent premarket. Bank of America also was down after the company announced it was laying off 650 employees and shedding its equity primer brokerage business.
First American was one a rare winner in the sector, as its shares rose after it announced plans to spin off its title and specialty insurance business into a separate public company to be called First American Financial.
Tech leaders Apple and Dell were under pressure as well.
Weak Holiday Sales Hit Retail
Retail troubles came after a government report showed sales fell 0.4 percent in December and were less vigorous in November than previously thought. The numbers reflected the impact soaring energy prices and falling home values were having on consumers.
Williams-Sonoma shares tumbled after it cut its outlookwhile the retail numbers were emerging, and big-box giants Wal-Mart and Target moved to the downside as well. JC Penney, Ann Taylor and Saks all fell sharply as well.
Among the few groups doing well was air transportation, which saw gains on news that Delta Air Lines had begun merger talks with both Nortwest Airlines and United parent UAL.
The shaky news on the equities front boosted bond pricesand sent yields to their lowest in four years. There also was increased talk of the Federal Reserve cutting interest rates and possibly going beyond the expected half-point cut at the central bank's meeting later this month.
As recession fears intensified oil continued its retreat off the $100 mark, falling below $92 and taking energy stocks lower as well. The retail sales numbers also hammered the dollar, which fell to its lowest level against the yen since 2005.
The economic slowdown also weighed on home builders, with shares dropping sharply at Toll Brothers, Hovnanian, Lennar and others.
-- Reuters contributed to this report.