Dow loses 679.95 as economy, Bernanke revive fear

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By Charles Mikolajczak

NEW YORK (Reuters) - Stocks tumbled on Monday as signs of a deepening economic slump around the world erased much of last week's sharp gains, with banks and retailers among Wall Street's biggest casualties.

Adding to the market's woeful day, the arbiter of U.S. business cycles declared that the United States entered recession in December 2007 and Federal Reserve Chairman Ben Bernanke said the U.S. economy remained under considerable strain.

"Things are looking quite bleak. Everyone acknowledges that," said Brian Gendreau, investment strategist at ING Investment Management in New York. "The question is to what extent is that already priced into the markets. Apparently, not entirely."

Shares of the largest U.S. banks tumbled as investors feared the dramatically slowing economy will undercut their businesses as the credit crisis simmers. An influential analyst also forecast tighter lending will hurt the economy and, as a result, squeeze meager bank profits.

The S&P financial index shed a record 17 percent as Citigroup sank 22.2 percent to $6.45. Bank of America slid 21 percent to $12.85.

The Dow Jones industrial average dropped 679.95 points, or 7.70 percent, to end at 8,149.09. The Standard & Poor's 500 Index slid 80.03 points, or 8.93 percent, to 816.21. The Nasdaq Composite Index lost 137.50 points, or 8.95 percent, to 1,398.07.

$1 TRILLION "PAPER LOSS"

Monday's sharply lower close snapped a five-day winning streak for the S&P 500. It was also the Dow's second-worst daily percentage drop this year.

The Dow Jones Wilshire 5000, one of the widest measures of U.S. stocks, fell 9.15 percent in its worst daily percentage slide since October 19, 1987, when the stock market crashed on a date that became known as Black Monday. On the first day of December 2008, the drop in the DJ Wilshire 5000 represented a paper loss of approximately $1.0 trillion.

The Chicago Board Options Exchange Volatility Index, which is Wall Street's favorite barometer of investor fear, jumped 22.69 percent to end at 68.51.

Early in the session, data showed factory activity in the United States fell in November to its weakest since 1982, according to the Institute for Supply Management. The data jolted investors already disappointed by earlier news of weaker Chinese and European manufacturing activity.

Black Friday, the traditional start of the holiday shopping season when retailers wrack up their biggest sales of the year, began with a whimper. Investors fear that retailers may turn in their bleakest sales in perhaps two decades. The S&P retail index declined 9.3 percent, as shares of department store operator Macy's Inc tumbled 13.6 percent to $6.41.

Consumers made repeat trips to stores and spent more on bargains this weekend, but analysts said the rush is unlikely to translate into a much needed profit boost.

Adding to the somber tone, the National Bureau of Economic Research declared that the United States entered recession late last year, ending 73 months of economic expansion.

In the tech sector, a report showing global semiconductor sales fell 2.4 percent in October hurt chip stocks. An index of chip stocks sank 7.6 percent.

On the Nasdaq 100, wireless chip maker Qualcomm Inc was the biggest drag, falling 10.8 percent to $29.96.

Volume was fairly healthy on the New York Stock Exchange, where about 1.64 billion shares changed hands, below last year's estimated daily average of 1.90 billion. On the Nasdaq,

about 1.99 billion shares traded, below last year's daily average of 2.17 billion.

Decliners outnumbered advancers by nearly 7 to 1 on the NYSE, while the ratio was almost 6 to 1 on the Nasdaq.

(Editing by Jan Paschal)

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