Stocks fall on weak energy sector and outlooks

NEW YORK (Reuters) - Stocks fell on Thursday as a sharp drop in oil prices bogged down the energy sector, including Exxon Mobil , overshadowing solid sales reported by world No. 1 retailer Wal-Mart Stores Inc .

Investors also grappled with disappointing financial outlooks from blue-chip companies, including drugmaker Merck and news of job cuts from companies, like phone provider AT&T .

Chevron Corp weighed heaviest on the Dow industrials , falling 2.6 percent, as U.S. crude oil futures sank 5 percent to $44.45 a barrel, the lowest since 2005, and a sign investors worry oil demand will fade as recession tightens its grip. Exxon's stock fell 3 percent to $76.52.

"What we're seeing is a manifestation of a broader economic slowdown that's affecting all market sectors," said Fred Dickson, market strategist for D.A. Davidson & Co.

The Dow Jones industrial average <.DJI> fell 116.60 points, or 1.36 percent, at 8,475.09. The Standard & Poor's 500 Index <.SPX> dropped 14.64 points, or 1.68 percent, at 856.10. The Nasdaq Composite Index <.IXIC> slipped 23.27 points, or 1.56 percent, at 1,469.11.

Economic worry has U.S. stocks stuck in a range of lows going back about 11 years. The benchmark S&P 500 <.SPX> is down 40 percent so far this year.

To cope with the spreading malaise, central banks in Europe, Britain and Sweden cut rates to stimulate business activity. The Bank of England cut rates by a full percentage point.

The United States' bright spot was the retail sector, bolstered by news of Wal-Mart's better-than-expected sales in November on lower gasoline prices and record sales of grocery items.

Government data showed factory orders plunged for a third straight month in October.

Dow component Merck's shares fell 3.8 percent to $25.45 after the pharmaceutical company provided a 2009 financial outlook below analyst estimates.

AT&T shares slipped 2.7 percent to $28.30 after announcing it would eliminate 12,000 jobs and cut its capital spending budget.

On the Nasdaq, computer and software stocks were the biggest losers. Apple was the top drag, falling 2.7 percent to $93.90, followed by Microsoft Corp , which dropped 1.7 percent to $19.51.

Shares of Intel Corp fell 4.25 percent to $13.08 after rival chip maker Advanced Micro Devices warned on its revenue outlook.

Investors also fretted about another round of congressional hearings on the U.S. auto industry rescue.

Executives of General Motors , Ford and Chrysler are back on Capitol Hill to make fresh pleas for billions in government aid to avert a possible bankruptcy.

(Editing by Kenneth Barry)