Wall Street hurt by auto bailout anxiety and financials

NEW YORK (Reuters) - Stocks fell on Thursday on dimming prospects for an automaker bailout, while bleak comments about the banking sector from JPMorgan's chief executive prompted investors to sell financial shares.

Most of the drop came late in the afternoon, but the day was governed by a steady stream of dismal corporate and economic news, including initial claims for unemployment benefits hitting a 26-year high. The pullback was another setback for those Wall Street pundits who argue that stocks hit their bottom late last month.

JPMorgan Chase was the Dow's biggest drag, falling more than 10 percent. A sell-off in the bank's shares accelerated after Chief Executive Jamie Dimon told CNBC the year-end environment was "terrible." The S&P financial sector index <.GSPF> dropped 8.5 percent.

"It reiterates how difficult this market is and how the real economy is weighing down on financial stocks," said Giri Cherukuri, head trader at OakBrook Investments in Lisle, Illinois, referring to Dimon's comments.

"It's continuing news that the world really hasn't changed. It's still a tough world out there."

A rescue for the struggling auto industry seemed dead unless all sides could come to an agreement. The White House urged Senate Republicans to back the $14 billion financial lifeline, but Republicans appeared to have more than enough votes to stop the bailout with a procedural roadblock.

The Dow Jones industrial average <.DJI> fell 196.33 points, or 2.24 percent, to 8,565.09. The Standard & Poor's 500 Index <.SPX> slid 25.65 points, or 2.85 percent, to 873.59. The Nasdaq Composite Index <.IXIC> lost 57.60 points, or 3.68 percent, to 1,507.88.

It was only the fourth down day for the S&P 500 since it hit a noteworthy intraday low on November 21. With the day's decline, the broad S&P 500 is up nearly 18 percent since tumbling to an 11-year low in late November. But the S&P remains down about 40 percent for the year so far.

After the bell, Dow component Bank of America Corp said it plans to cut about 30,000 to 35,000 jobs over the next three years. Its stock gained 2.5 percent to $15.28 in extended-hours trading.

During the regular session, shares of JPMorgan slid 10.7 percent to $29.94. Earlier, UBS cut its price target on the stock and earnings estimates for the blue-chip bank holding company, citing a weak operating environment. It was the third straight day of losses for the financial sector, the longest losing streak since the bailout of Citigroup late last month.

Shares of General Motors slid 10.4 percent to $4.12, while Ford lost 10.8 percent to $2.90. Investors fear that without the government's help, a potential failure or bankruptcy of one of Detroit's Big Three could send shock waves through the economy and make the country's unemployment rate even worse.

The energy sector provided a bright spot, with Chevron giving the Dow its biggest boost. Chevron's stock rose 1.3 percent to $79.46. A report from the International Energy Agency forecast global oil demand will rebound next year, helping send January crude oil futures up $4.46 to settle at $47.98 a barrel.

In more corporate bad news, shares of Ciena Corp shed 20 percent to $6.05 on Nasdaq after the communications equipment maker reported a surprising quarterly loss and warned of weaker-than-expected sales.

Boeing Co lost 3.4 percent to $40.27 after it pushed back the schedule for its 787 Dreamliner jet for the fourth time.

Volume was moderate on the New York Stock Exchange, where about 1.47 billion shares changed hands, below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 2.05 billion shares traded, below last year's daily average of 2.17 billion.

Decliners outnumbered advancers by a ratio of more than 3 to 1 on the NYSE, while on the Nasdaq, about three stocks fell for every one that rose.

(Additional reporting by Deepa Seetharaman; Editing by Jan Paschal)

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