U.S. Stocks Sink, Dow Industrials Hit Nine-month Lows

NEW YORK (MarketWatch) -- U.S. stocks plunged on Thursday, with the Dow industrials hitting nine-month lows, as Federal Reserve Chairman Ben Bernanke spoke about the country's economic trouble and after a gauge of economic activity in the Philadelphia area showed a sharp contraction in January.

"When reminded about how bad things are, the market remembers it should go down," said Art Hogan, chief market strategist at Jefferies & Co.

"And, it is going to take more than just monetary policy to clean up the mess we've made with this economy," Hogan said.

The market had opened higher as investors interpreted earlier economic data as solidifying chances of interest-rates cuts ahead, and a large loss by Merrill Lynch & Co. as getting bad news out of the way.

Up about 50 points after the start, and then down more than 100 points in early morning trade, the Dow Jones Industrial Average more recently fell 174.5 points to 12,291.7, with 26 of its 30 components trading lower.

Blue-chip declines were led by American International Group Inc. , down 5.9%, and Merck Co. Inc. , off 6.1%.

Dow component Boeing Co. was among those gaining, up 0.2%.

The S&P 500 declined 25.3 points to 1,347.9, while the Nasdaq Composite fell 26.08 points to 2,368.51.

Volume on the New York Stock Exchange surpassed 818 million, and declining stocks beat those rising 4 to 1. On the Nasdaq, more than 1.1 billion shares traded, and decliners outdid advancing issues, also about 3 to 1.

On the New York Mercantile Exchange, crude-oil futures fell 97 cents to $89.87 a barrel, while gold futures gained $4.8 to $877.2 an ounce.

Fed factor

Bernanke on Thursday told Congress that lawmakers could help steer the economy away from recession if they adopt an efficient and temporary stimulus plan. .

The Federal Reserve Bank of Philadelphia reported its index of manufacturing activity in the region contracted sharply in January to its lowest level since October 2001. .

The Commerce Department reported construction on new homes fell 14% in December, to the slowest pace in more than 16 years. .

Separately, the Labor Department's count of those filing for state jobless benefits last week fell to its lowest level in nearly four months, while the four-week average of continuing claims climbed to its highest count since November 2005.

U.S. stocks wobbled on Wednesday before closing lower, with the Dow industrials losing 34 points, the Nasdaq Composite dropping 23 points and the S&P 500 ending nearly 8 points lower.

Of companies reporting earnings, financial titan Merrill Lynch became the latest to be humbled by the credit-market crisis, swinging to a loss of $9.8 billion after writing down $11.5 billion.

Merrill stock fell 8.8% in recent action.

Shares of Bank of New York Mellon climbed 3.2% after it reported a 68% decline in profit after taking a $118 million write-down related to collateralized debt obligations and a $180 million charge for bringing a conduit onto its balance sheet.

After the close, International Business Machines will release the full details of its quarterly performance. Big Blue released preliminary numbers on Monday.

IBM stock gained 0.3%.

General Motors also will be in focus as it's due to make a presentation at 1:30 p.m. Eastern in front of analysts.

The automaker's stock was off 1.4%.

EBay got a lift, recently up 0.1%, after Bear Stearns upgraded the online auctioneering firm to outperform from peer perform, saying the investor-sentiment pendulum had swung too far toward fear.

By Kate Gibson