Wall Street stumbles on economic data, retail anxiety

NEW YORK (Reuters) - Stocks fell in thin trading on Tuesday on further deterioration in the housing market, while worry over weak consumer spending hurt retailers in the final stretch of the Christmas shopping season.

General Motors fell hard for a second day as investors worried if last week's $17.4 billion aid package from the U.S. government will be enough to keep Detroit's big automakers from bankruptcy. GM, which helped drag the Dow to its fifth straight daily decline, dropped almost 15 percent and has lost a third of its value since Friday, when the bailout was announced.

A batch of data earlier in the day showed sales of new and existing homes fell again, and the U.S. economy contracted in the third quarter, thanks to the biggest drop in consumer spending in 28 years.

"The GDP did continue to contract, which was negative for the market," said Jocelynn Drake, market analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

"However, with light trading and how the Fed has moved in to really bolster the market, I think that's really going to keep us from having large swings at this point."

Retailers' stocks slipped after a survey showed stores had their lowest turnout in at least six years during the last weekend before Christmas, traditionally one of the busiest times of the year. Shares of department store operator Macy's fell more than 6 percent.

The Dow Jones industrial average lost 100.28 points, or 1.18 percent, to 8,419.49. The Standard & Poor's 500 Index slid 8.47 points, or 0.97 percent, to 863.16. The Nasdaq Composite Index shed 10.81 points, or 0.71 percent, to 1,521.54.

With just five trading days remaining in the year, the broad S&P 500 is down more than 41 percent for the year. The annual decline is surpassed only by the 47.1 percent fall in 1931, when the country was mired in the Great Depression.

Both the Dow and the S&P 500 closed at their lowest levels in nearly three weeks. Volume was expected to be light throughout the week, shortened by the Christmas holiday on Thursday. Markets will close early on Wednesday for Christmas Eve.

Dow component GM lost 14.8 percent to $3.00 as enthusiasm over the government bailout evaporated. On Monday, an analyst at Credit Suisse said the automaker's equity could be largely, if not entirely, wiped out as it complies with the restructuring targets outlined in the U.S. government's rescue package. Ford was down 15.4 percent at $2.19.

In more evidence of the deteriorating housing market, data showed the pace of existing home sales plunged a record 8.6 percent in November and new-home sales fell 2.9 percent last month.

Analysts say stability in the housing sector is key to any recovery in the U.S. economy, which has been in a recession since late last year.

Gross domestic product figures showed the U.S. economy contracted at an annual rate of 0.5 percent, as economists had expected. The market's focus has shifted to the current fourth quarter, which is expected to be much weaker.

Retailers were in the spotlight with Christmas approaching. A survey released on Tuesday showed just 38.7 percent of Americans went shopping during the final weekend before Christmas -- usually among the busiest shopping weekends of the year.

The S&P Retail index fell 1.4 percent. Macy's lost 6.8 percent to $8.71, while JC Penney fell 3.3 percent to $18.15.

American Greetings was the latest company to say it couldn't give an outlook due to the deteriorating economy, while it reported a third-quarter loss. The greeting card company's stock dove 34.8 percent to $6.40.

Volume was low on the New York Stock Exchange, with about 984.5 million shares changing hands, well below last year's estimated daily average of roughly 1.9 billion, while on the Nasdaq, about 1.33 billion shares traded, sharply below last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 2, while on the Nasdaq, nearly two stocks fell for every one that rose.

(Editing by Jan Paschal)