Stocks declined Thursday as worries about General Electric's credit and the fate of the auto industry weighed on the market.
The Dow Jones Industrial Average ended down 219.35, or 2.5 percent, at 8,604.99, off its earlier low, after shedding 99.80 in the prior session.
The S&P 500 index fell 2.1 percent, while the Nasdaq dropped 1.7 percent.
General Electric shares fell about 7 percent after Standard & Poor's announced a "negative" credit rating on GE and its finance arm, saying there is at least a one-in-three chance it will cut GE's credit rating from the top "AAA" in the next two years.
General Motors and Ford skidded 16 percent and 9.6 percent, respectively, as the Bush administration mulled "orderly" bankruptcyas a solution to the auto industry's problems.
The other news out of the sector today was that merger talks are back on between GM and Chrysler as Cerberus Capital Management has signaled its willingness to give away part of its ownership in Chrysler, the Wall Street Journal reported.
Caterpillar shares fell 5.6 percent after the heavy-equipment maker announced plans to lay off hundreds of workers at an engine factory in Illinois that makes engines used in commercial-trucks and earth-moving machines.
Ingersoll-Rand dropped 4.7 percent after the the diversified manufacturer slashed its outlook through next year, citing weakness in Europe.
Energy stocks got pummeled as crude oil fell nearly $4 to settle at $36.22 a barrelafter OPEC on Wednesday agreed to cut output by 2.2 million barrels a day.
Dow energy components Chevron and ExxonMobil each lost about 5 percent.
Techs took a hit after Jefferies downgraded its rating on Intel and other chip stocks, citing the slowdown in the personal-computer market. Intel lost 6.6 percent, while the Philadelphia Semiconductor Index tumbled 5.5 percent.
Financial stocks were mixed as investors digested the Fed's rate cut and the latest earnings from the sector.
FedEx shares lost 2.1 percent after the package-delivery giant hit its earnings target but offered a grim outlook for 2009 and said it plans to cut costs by $1 billion.
Discover Financial Services rose 7.9 percent after the credit-card provider returned to profitability, helped by an $863-million payment that resulted from its antitrust settlement with Visa and MasterCard. However, Discover warned of mounting card-related losses as more customers fell behind on their credit-card payments.
This followed huge losses from Goldman Sachs and Morgan Stanleyearlier this week.
Rite Aid fell 7.8 percent after the drugstore chain posted its sixth straight quarterly lossand the drugstore chain said it expects to post a bigger loss this year as shoppers cut back.
Nike rose 4.1 percent after the athletic titan reported that its profit rose 9 percentas higher-priced products and international growth offset lower revenue in the U.S.
In today's economic news: Initial jobless claims fell more than expectedlast week, dropping by 21,000 to 554,000, though the four-week moving average remained at a 26-year high. Factory activity in the mid-Atlantic region continued to slump but not as badly as expected. Meanwhile, leading indicators fell 0.4 percent to 99 in November, their lowest level in more than four years, the Conference Board reported.
Asian stocks closed flat to slightly higher after Japan stepped up its warnings against the yen's rise to a 13-year high versus the U.S. dollar. Dealing with the situation may include intervening in the foreign exchange markets.
In Europe stocks were mixed, with two big merger deals called off as the economic situation worsened.
French bank BNP Paribas said its plan to buy a stake in Belgium's Fortiscould no longer proceed as plannedafter a Brussels Court suspended it. The deal was agreed in October as a way to rescue Fortis, which was severely hit by the credit crunch.
And Australia's Qantas Airways and British Airways said they called off talks for a $6.4 billion deal, which was seen as a good way to fight rising fuel prices and falling demand in the airline sector.
Meanwhile, the funds arm of Swiss bank Credit Suisseplans to quit managing U.S. money-market funds and is liquidating three funds that have about $8 billion in assets.
Still to Come:
FRIDAY: Quadruple witching
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