Wall Street sinks as economic woes mount

NEW YORK (Reuters) - Stocks tumbled on Thursday, derailing a four-day surge in the S&P and Nasdaq as poor earnings coupled with a fresh wave of bleak labor market and housing data heightened fears of a deep recession.

A day after financials propelled Wall Street to its longest winning streak in two months, insurer Allstate plunged 20.7 percent after posting a $1.1 billion quarterly loss and stirred concerns about more losses on insurers' books.

Government reports showed the amount of people filing for unemployment benefits hit a record in mid-January, while orders for long-lasting goods fell for the fifth straight month in December and new home sales slid to a record low.

Bellwethers whose profits are sensitive to economic growth, like Boeing , down nearly 6 percent, led the broad market sell-off.

"There's no major sign of confidence for stock prices," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. "The catalysts to reverse the economic slump are not fully in place yet."

The Dow Jones industrial average <.DJI> slid 226.44 points, or 2.70 percent, to 8,149.01. The Standard & Poor's 500 Index <.SPX> tumbled 28.95 points, or 3.31 percent, to 845.14. The Nasdaq Composite Index <.IXIC> dropped 50.50 points, or 3.24 percent, to 1,507.84.

Even as the Obama administration pushes ahead with plans to jolt the economy out of recession, investors feared that mounting layoffs, a poor earnings outlook and persistent uncertainty about the financial sector's health would continue to sap confidence.

Stocks' inability to sustain their recent rally marks a major hurdle in the market's attempt to reverse its year-to-date losses, with the benchmark S&P 500 index down more than 6 percent, the Dow off 7.2 percent, and the Nasdaq off more than 4 percent.

Of the Dow's 30 components, only three finished higher -- diversified manufacturer 3M , up 2 percent at $56.55; drug maker Merck & Co , up 0.6 percent at $28.94, and Procter & Gamble , up 0.1 percent at $58.22. Both Merck and P&G are among stocks traditionally deemed as a defensive play in a downbeat economy.

Boeing's stock lost 5.9 percent to $40.71 and ranked as the second-heaviest weight on the Dow industrials, behind Chevron , a day after the jet plane maker posted a disappointing outlook and announced an order cancellation.

Allstate tumbled 20.7 percent to $23.50 and contributed to an 8.4 percent drop in the S&P financial index <.GSPF>. Among bank stocks, JPMorgan slid 8.1 percent to $25.43.

In the last half hour of trading, bank stocks added losses after U.S. President Barack Obama said large bonuses doled out to Wall Street executives last year were "shameful," and noted he would tell the executives to show restraint.

The energy sector was another big drag as Exxon Mobil shares shed 3.1 percent to $76.80 after Goldman Sachs removed the company from its Americas Buy list, a day before the major oil company reports earnings. Shares of rival Chevron slid 4.3 percent to $70.62 after the company said its 2009 capital spending program will be unchanged from 2008.

Among home builders, shares of Hovnanian Enterprises slid 10.5 percent to $1.71 and Toll Brothers fell 7.5 percent to $17.85. The Dow Jones home construction index <.DJUSHB> tumbled 8 percent after sales of new homes fell in December to the lowest annual pace since the Commerce Department started keeping records in 1963.

Tool and home appliance maker Black & Decker posted a better-than-expected quarterly profit, but warned it sees a very weak 2009, and its stock slid almost 21 percent to $30.65.

According to Thomson Reuters proprietary research, fourth-quarter earnings will slide 35.1 percent from a year ago, marking the largest drop in at least a decade.

Worries that President Obama's $825 billion economic stimulus package could still face a bumpy road also weighed on sentiment after the U.S. House of Representatives passed it late on Wednesday although every Republican who voted opposed it. The Senate begins debate next week.

Qualcomm Inc was the biggest drag on Nasdaq after it cut its full-year revenue target on weak demand for cell- phone chips. Its stock fell 4.6 percent to $35.13.

Before Friday's opening bell, investors will scrutinize the government's first snapshot of fourth-quarter gross domestic product, which measures all goods and services produced within U.S. borders.

The GDP report, due at 8:30 a.m. (1330 GMT), is expected to show the economy contracted by at least a 5.4 percent annual rate in the fourth quarter -- the worst since the first quarter of 1982.

(Reporting by Ellis Mnyandu; Editing by Jan Paschal)