Stocks fall on Dow Chemical news and economic worry

NEW YORK (Reuters) - Wall Street slid on Monday after a joint venture between Kuwait and Dow Chemical disintegrated, putting one of the larger merger deals of the year at risk and adding to fears about a weakening global economy.

Dow Chemical shares tumbled to their lowest level since 1991 after Kuwait decided to end the $17.4 billion deal, citing slumping petrochemical sales and the global financial crisis.

The news raised concerns that the largest U.S. chemical company would not be able to complete its deal to buy rival Rohm & Haas , which Dow had agreed to acquire for about $15.3 billion in July. Rohm & Haas shares fell as much as 25 percent.

The declines were exacerbated by light volume, analysts said. Trading is expected to be light throughout the week, abbreviated by the New Year's holiday on Thursday.

The increasingly disappointing economic data and company news has stifled hope for a year-end rally.

"We're drifting lower on a lack of interest. Everyone wants this year over with," said Frank Lesh, futures analyst and broker at FuturePath Trading LLC in Chicago. "There's not much here to enthuse the buyers."

The Dow Jones industrial average <.DJI> was down 117.72 points, or 1.38 percent, at 8,397.83. The Standard & Poor's 500 Index <.SPX> was down 12.56 points, or 1.44 percent, at 860.24. The Nasdaq Composite Index <.IXIC> was down 35.04 points, or 2.29 percent, at 1,495.20

The Nasdaq was dragged down by large-cap tech companies including BlackBerry maker Research In Motion , which fell 5.2 percent to $38.71, and Microsoft Corp , down 1.8 percent to $18.78.

Dow Chemicals and Rohm & Haas were among the largest percentage decliners on the New York Stock Exchange. Dow was down nearly 19 percent to $15.36, while Rohm & Haas was off over 16 percent to $53.30.

The collapsed joint venture added to concerns about the chemicals industry, which has been struggling because of recessions in most developed countries and a sharp slowdown in emerging economies.

Economic worries overshadowed gains in the energy sector as oil climbed on concerns that crude supplies could be disrupted by tensions between Israel and the Hamas-ruled Gaza Strip.

Energy shares gained as oil prices rose to more than $38 a barrel as Israeli warplanes hit the Gaza Strip for a third day and Israel prepared to launch a possible invasion. The offensive has killed more than 300 Palestinians in the deadliest violence in the territory in decades.

Chevron and Exxon Mobil were among the best performers on the Dow, while the S&P 500 index <.GSPE> of energy stocks rose 1.3 percent. Chevron rose 1.1 percent to $71.10 and Exxon Mobil rose 0.5 percent to $77.57.

Analysts, meanwhile, said the rise in energy prices did not bode well for struggling consumers.

As 2008 draws to a close, investors are hoping the incoming White House administration will offer another stimulus package in an effort to help steer the country out of a year-long recession. The broad S&P 500 is down about 40 percent for the year, second only to 1931's record drop of 47.1 percent.

President-elect Barack Obama has said signing a major economic stimulus package will be his priority when he takes office on January 20.

Over the weekend, one of Obama's top economic advisers said financial policy should address both immediate job creation and longer-term investment needs.

Lawrence Summers, Obama's pick to head the White House National Economic Council, said spending government money solely to stimulate consumer spending would be a short-sighted mistake.

(Editing by Leslie Adler)

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