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US STOCKS-Economic fears, credit woes sink Wall Street

Published on Reuters

BONDS NEWS OCTOBER 2, 2008 / 12:23 PM

* Credit market strains persist worldwide

* Weekly U.S. jobless claims hit 7 year-high

* August factory orders tumble

* House still must vote on bailout passed by Senate

* Dow off 2.2 pct, S&P off 2.5 pct, Nasdaq off 2.7 pct (Recasts to midday, changes byline)

By Steven C. Johnson

NEW YORK, Oct 2 (Reuters) – U.S. stocks fell on Thursday as tight credit markets and bleak economic data left investors focused on the rocky road still ahead for the U.S. economy even if Congress passes a $700 billion rescue package this week.

The Dow shed more than 200 points while the benchmark S&P 500 fell more than 2 percent as Wall Street worried about more economic weakness and its likely impact on corporate profits.

Data showing the number of people filing for unemployment benefits hit a seven-year high painted a troubling picture, as did a report showing a steep drop in factor orders in August.

That added to anxiety about the fate of the government’s rescue plan, which the Senate passed on Wednesday after the House rejected it in its original form. A second House vote was expected on Friday.

The weak data is “all an indication of how much damage this lack of activity in credit markets over the last year has done to the U.S. and global economy,” said Alan Lancz, president of Alan B. Lancz & Associates Inc, in Toledo, Ohio.

“None of this is positive for the U.S. consumer, either,” he said. “It’s almost a perfect storm and it’s starting to hit home.”

Investors pummeled shares of technology companies such as Intel Corp (INTC.O), down almost 4 percent at $17.80, andeconomic bellwethers such as heavy-equipment maker Caterpillar Inc (CAT.N), whose stock tumbled more than 4 percent to $54.55.

Diversified manufacturers also struggled after Barclays cut its outlook for the sector. [ID:nWNAS2835]

General Electric (GE.N) slid more than 8 percent to $22.50 after the company, seeking to raise cash, said it priced a share offering below the stock’s closing price on Wednesday.

The Dow Jones industrial average .DJI was down 233.29 points, or 2.15 percent, at 10,597.78. The Standard & Poor’s 500 Index .SPX was down 28.92 points, or 2.49 percent, at 1,132.14. The Nasdaq Composite Index .IXIC was down 56.61 points, or 2.74 percent, at 2,012.79.

IBM (IBM.N) shares fell 5.1 percent to $104.52 on the New York Stock Exchange, while on Nasdaq, shares of eBay Inc (EBAY.O) tumbled 8.2 percent to $19.15 after Morgan Stanley cut its price target on the stock of the Internet auctioneer and retailer.

Commodity-related companies’ shares also weakened as commodity prices retreated, with miner Freeport McMoRan Copper & Gold Inc (FCX.N) falling 8.6 percent to $48.42, after Goldman Sachs removed the stock from its “buy” list.

The Senate passed the bailout two days after the House rejected an initial plan that triggered the biggest slide in U.S. stocks in 21 years.

Still, credit market constraints persisted on Thursday. The commercial paper market — short-term loans — contracted for the third straight week, as business lending and borrowing effectively shut down.

In the latest sign of faltering consumer and business spending, hotel operator Marriott International Inc MAR.N warned that 2009 would be tough, sending its shares down 1.8 percent to $24.62 on the NYSE.

Lancz said investors are likely to start focusing more on economic indicators and earnings, adding “there is likely to be some disappointment on that front. People are not focusing as much on the bailout.”

Even so, investors said things would get even worse if the rescue plan fails for a second time. U.S. President George W. Bush, speaking after the 74-25 Senate vote, called the bill “essential to the financial security of every American.”

“If this bill doesn’t pass in the House, it’s game over,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “The House tomorrow has an opportunity to potentially stave off a complete economic collapse.” (Additional reporting by Ellis Mnyandu; Editing by Jan Paschal )