By Kristina Cooke
NEW YORK (Reuters) - Stocks dropped for a third straight session on Thursday, led by consumer and financial companies, as earnings disappointments mounted and investors worried about how much damage the credit crisis has wrought on the global economy.
A weak holiday season sales outlook from online retailer Amazon.com Inc fell 251.85 points, or 2.96 percent, to 8,267.36. The Standard & Poor's 500 Index slid 35.38 points, or 3.95 percent, to 861.40. The Nasdaq Composite Index was down 72.42 points, or 4.48 percent, at 1,543.33.
Earlier in the day, the Dow had risen as much as 3.3 percent in a rally driven by bargain hunters.
"What we are seeing here is forced selling and redemptions. Everything is getting slammed, regardless of whether it makes sense or not," said Stephen Massocca, co-chief executive at San Francisco-based investment bank Pacific Growth Equities.
Shares of major homebuilders helped lead the broader market down, a day after Pulte Homes Inc and Ryland Group Inc reported quarterly losses and Pulte said a bottom was nowhere near.
Pulte fell 24.1 percent to $7.55, while Ryland slid 17.4 percent to $14.78. The Dow Jones U.S. Home Builders index was down 17.3 percent.
Adding to investor concern, efforts to unlock global money markets hit a snag on Thursday as banks raised their lending rates on dollar funds for the first time in two weeks.
Outside of interbank lending, the U.S. commercial paper market contracted for a sixth straight week to its smallest in 3-1/2 years, despite evidence of improved demand for this type of corporate debt. Commercial paper allows many U.S. companies to fund day-to-day operations.
Industrial and technology companies, seen as vulnerable in a global slump, also fell sharply. Caterpillar dropped 6.2 percent to $34.24 per share, while Hewlett Packard slid 9 percent to $32.06.
Caterpillar, a maker of bulldozers and excavators, fell after giving a sales warning and reporting lower quarterly profit earlier this week. Late Wednesday, some brokerages cut their price targets on the stock.
Coca-Cola Co was one of the heaviest weights on the Dow after bottler Coca-Cola Enterprises Inc cut its 2008 profit forecast. Coke, which owns about 40 percent of the bottler, lost 8 percent to $41.75.
Amazon.com Inc fell 5.7 percent to $47.15 after it said sales in the holiday quarter would fall short of Wall Street's expectations.
The energy sector, buoyed by rising oil prices after recent sharp falls, helped limit declines in both the Dow and the S&P 500. An S&P index of energy shares climbed 1.55 percent as U.S. front-month crude futures rose $1.36 to $68.11 a barrel.
On the earnings front, however, there were some bright spots. Dow Chemical jumped 7 percent to $23.66 after the largest U.S. chemical maker posted lower third-quarter profit but still beat expectations on strong results from its agricultural business. But Dow warned that the global economy was likely to struggle through a recession for most of 2009.
(Editing by James Dalgleish)
