Stocks slump as economic fears increase

NEW YORK - The Dow Jones industrial average fell more than 265 points and the two other major indexes also swooned Tuesday as investors reacted to more signs of weakness in the U.S. economy and poor earnings from several big companies.

The Dow's decline left the average below 12,000, and the Standard & Poor's 500 index has lost virtually all of its gains for the year.

"The market is starting to wonder where the growth is going to come from," said Nick Kalivas, a vice president of financial research at MF Global. "It hasn't hit the panic button yet, but that's where we're drifting."

Behind the sharp decline in stocks: a series of weak economic reports. The Commerce Department reported that consumers cut their spending in June for the first time in nearly two years. Analysts had predicted a slight increase. The report also showed that incomes rose by the smallest amount since September, reflecting a weak job market.

The report comes a day after a weak manufacturing report and Friday's report that the economy grew at its slowest pace in the first half of the year since the recession ended in June 2009.

The Dow dropped 265.87, or 2.19 percent, to close at 11,866.62.

The broader S&P 500 index fell 32.89, or 2.56 percent, to 1,254.05. It is up only 0.29 percent for the year.

The Nasdaq composite fell 75.37, or 2.75 percent, to 2,669.24.

All 30 stocks in the Dow lost ground.

General Electric Co., Pfizer Inc., Home Depot, United Technologies Corp., and Alcoa led the index lower with losses of 4 percent or more each.

The S&P index has fallen for seven straight days, its longest string of losses since the middle of the financial crisis in October 2008. It is down nearly 7 percent since reaching a high for the year of 1,363 on April 29. The Dow has fallen for eight straight days, losing a total of 730 points, or nearly 6 percent.

Even with the losses, the S&P and Dow are now near where they were at the end of June.

But some investors say that their outlooks for the rest of the year are diminishing because they see few sources of support. Last year, the Federal Reserve began a stimulus program, known as quantitative easing, that was credited with helping the U.S. economy avoid another recession.

But the Fed has indicated it does not have plans to implement another round of stimulus. And the new concern in Washington about deficits makes it even less likely, analysts said.

"With this debt debate going on, there is not an expectation for more fiscal or monetary stimulus and that's a real concern," said Jim Peters, the head of Tactical Allocation Group, a money manager in Michigan with $1.5 billion under management.

Archer Daniels Midland Co. dropped nearly 4 percent after the agricultural conglomerate said it missed Wall Street's profit forecasts.

The consumer spending pullback was the latest indication that the U.S. economy may be slowing.