Stocks finish lower amid lingering economic fears

New reports show that the economy’s troubles are far from over.

NEW YORK (AP) — Wall Street extended its losses Thursday, as a negative ratings outlook on financial and industrial powerhouse General Electric Co. shook an already fragile investor psyche and sent stocks tumbling.

After moving within a narrow trading range for much of the session, the Dow Jones industrial average dropped about 220 points. The broader Standard & Poor’s 500 index lost more than 2 percent.

Stocks struggled to find a direction in the early going Thursday as investors sifted through a number of economic indicators, including more layoffs and dismal earnings forecasts.

But a negative ratings outlook on GE from Standard & Poor’s added further pressure on the market.

The ratings service lowered its outlook on GE and its GE Capital finance arm to negative from stable. S&P affirmed their Triple-A ratings, but said there is a one-in-three chance they could lose them because of the ongoing financial struggles at GE Capital.

GE shares fell $1.43, or 8.2 percent, to close at $15.96.

At the same time, energy stocks tumbled as oil prices plunged. Crude briefly dropped below $36 a barrel Thursday on worries of a drastic pullback in energy spending, even after a record production cut from OPEC earlier this week.

“The fear is that if oil does fall down to $25 or $30 a barrel, that could indicate that the economy is even weaker than market perception and that obviously is negative,” said Peter Cardillo, chief market economist for Avalon Partners.

Chevron Corp. fell $3.79, or 4.9 percent, to $73.03, while Exxon Mobil Corp. dropped $4.06, or 5 percent, to $77.

Thursday’s news reinforced the belief that the economy’s troubles are far from over. The market remains unsure how steep and prolonged the recession will be.

The expiration today of some options contracts for December added to the downward pressure, Cardillo said.

The Dow fell 219.35, or 2.49 percent, to 8,604.99. The Standard & Poor’s 500 index fell 19.14, or 2.12 percent, to 885.28, while the Nasdaq composite index fell 26.94, or 1.71, to 1,552.37.

Wall Street’s sharp decline late Thursday overshadowed some of investors’ earlier enthusiasm over a potential economic stimulus package. President-elect Barack Obama’s aides are working on assembling a two-year plan that could cost $850 billion and include new jobs, middle-class tax relief and expanded aid for the poor and the unemployed.

Further weighing on the market were lackluster economic data and mixed corporate earnings reports.

The Labor Department reported that initial jobless claims fell by more than economists anticipated to 554,000 last week. The claims remain near last week’s 26-year high, and the four-week moving average for claims is up, but investors had been bracing for a gloomier reading.

Meanwhile, a private research group’s measure of the economy’s health fell again in November and its six-month rate of decline hit the worst level since 1991.

“Most of the data was better than the market expected, but showed that the economy is still contracting,” Cardillo said.

FedEx Corp. reported a 3 percent rise in quarterly earnings, but announced further cost cuts as demand continues to wane. Ingersoll-Rand Co. cut its fourth quarter earnings forecast by more than half, and motor home maker Winnebago Industries Inc. swung to a loss.

But Discover Financial Services swung to a profit and homebuilder Lennar Corp.’s quarterly loss was smaller than last year’s.

In recent weeks, the market has moved away from the wild 300-point swings of September, October and early November, leading some analysts to believe that Wall Street is beginning to show some stability.

“People in general are less pessimistic,” said Bernie McGinn, chief executive of Alexandria, Va.-based McGinn Investment Management. “They are still not optimistic, but they are less pessimistic, and I think the market reflects that.”

Since the S&P 500 and the Dow hit multiyear lows on Nov. 20, the Dow is still up 13.9 percent, while the S&P 500 is up 17.7 percent.

But Thursday’s decline, which extended a 100-point drop in the Dow on Wednesday, showed just how fragile the market still is. Because stocks are up so much from their Nov. 20 lows, the market is more sensitive to news, said Chris Hensen, senior portfolio manager with MFC Global Investment Management in Toronto.

“News like this out of General Electric would make the market roll over,” he said.