Oil, GM Wallop Stocks

Updated from 4:18 p.m. EDT

Stocks slumped into the close and finished sharply lower Wednesday following a bearish speech from Treasury Secretary Henry Paulson, disappointing jobs data and yet another increase in the price of crude oil.

The Dow Jones Industrial Average sank 166.75 points, or 1.5%, to 11,215.51, and the S&P 500 was off 23.39 points, or 1.8%, at 1261.52. The Nasdaq plunged 53.51 points, or 2.3%, to 2251.46.

With the decline, the Dow and the Nasdaq have both now fallen more than 20% from their highs last October, putting the indices in what is widely accepted as bear-market territory.

General Motors (GM Quote), a Dow component that helped the market rally from an early selloff Tuesday, suffered a Merrill Lynch downgrade to underperform from buy. Merrill cut its price target for GM to $7 from $28 and said the company needs $15 billion in additional capital. GM dropped 15% to $9.98.

In technology, Microsoft (MSFT Quote) is once again working to ink a deal to get Yahoo!'s (YHOO Quote) search business, according to a report in The Wall Street Journal. Yahoo! ended up 3.4% at $20.88, while Microsoft lost 3.7% to $25.88.

Meanwhile, Paulson -- speaking Wednesday at the G8 summit in London -- once again advocated regulatory reform to accommodate the failure of individual financial firms while preserving the integrity of the wider system. Paulson said that the housing market was in for more foreclosures and the financials remain an area of concern.

Fears about the financial sector had somewhat abated earlier when UBS (UBS Quote) and Deutsche Bank (DB Quote) said they won't need fresh capital to improve their balance sheets, but as the day wore on, the stocks lost momentum.