Sharp Selloff on Wall Street

Updated from 2:37 p.m. EDT

Stocks in New York tumbled Wednesday as investors found little reason to buy equities following a set of downbeat economic data, including reports on retail sales and foreclosure filings in the U.S.

The Dow Jones Industrial Average was down 184.22 points, or 2.2%, at 8284.89, its biggest point and percentage drop since April 20, and the lowest close since the first day of May. The S&P 500 was off 24.43 points, or 2.7%, at 883.92. The Nasdaq Composite lost 51.73 points, or 3%, to 1664.19.

Some of the day's biggest decliners on the S&P 500 included Bank of America (BAC Quote), Alcoa (AA Quote), Dow Chemical (DOW Quote), Regions Financial (RF Quote) and Weyerhaeuser (WY Quote), which all dropped 8% or more.

One drag came from the Commerce Department before trading even began. The government said retail sales fell 0.4% in April, while economists were expecting a flat reading. Excluding auto sales, retail sales declined 0.5%, compared to forecasts for a 0.2% increase.

Ian Shepherdson, chief economist with High Frequency Economics, said the April retail sales report is not a disaster if isolated, but economists were hoping for a stronger rebound after the revised 1.3% drop in March.

"We now have to expect flat consumption in April, which means there has been no net increase since January," Shepherdson said in an email. "In short, there is no momentum in spending. The freefall is over but shredded balance sheets and declining incomes mean a broadly flat trend is about the best we can expect."

The SPDR S&P Retail (XRT Quote) slid nearly 4% following the report, as several of its holdings lost ground. Best Buy (BBY Quote), Sears Holdings (SHLD Quote) and J.C. Penney (JCP Quote) fell by 5% or more.

Other economic data weren't pretty, either. Another report showed that import prices rose 1.6% in April, the largest increase in almost a year and well above economists' expectations. Additionally, March business inventories declined 1%, slightly better than consensus.

Bonds were advancing after the economic news, continuing the recent rally. The 10-year Treasury note rose 16/32 in price to lower the yield to 3.11%, and the 30-year bond gained 1-4/32 to yield 4.09%. The dollar was higher against the euro, but was lower against the yen.

Also weighing on the market were reports that President Obama is looking at methods to alter the compensation paid by banks and financial institutions, even at those firms that haven't received government aid. Wall Street tends to take a dim view of government intervention in pay structures or controls at private companies.

Several banks were weak, including JPMorgan Chase (JPM Quote), Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote).

Quincy Krosby, chief investment strategist with the Hartford, says that while Wednesday's economic data and word of compensation regulation were not welcomed by investors, stocks were poised for a selloff and were merely waiting for an excuse.

"The market was headed for a pullback," she said. "It's been technically overbought. Basically, investors now want to see data that becomes more positive, and not less bad."

The growing number of secondary offerings in the market has also put pressure on equities, in the banking sector and elsewhere. Ford (F Quote), Wells Fargo (WFC Quote) and U.S. Bancorp (USB Quote) are among several companies to announce common stock offerings in the last week.

Dour news also came from RealtyTrac, which said that foreclosure filings were reported on more than 340,000 properties nationwide in April. While that was up less than 1% from March, it represented an increase of 32% from the same month a year ago.

Meanwhile, Treasury Secretary Timothy Geithner was speaking before the Independent Community Bankers of America Washington Policy Summit in Washington. In prepared remarks, Geithner said the government will use proceeds of the repayments received from some of the largest banks that have gotten federal aid to reopen the application window for banks with total assets under $500 million.

"These steps will help level the playing field," Geithner said. "They will help ensure that we preserve one of the most important strengths of the U.S. financial system, the thousands of community banks."

After the close, he discussed the Obama administration's plan to regulate derivatives of the kind that pummeled the financial system last year.

Turning to stock news, Intel (INTC Quote) was in focus after the European Union fined the chipmaker a record 1.06 billion euros ($1.45 billion) for breaking antitrust laws.

Advanced Micro Devices (AMD Quote) alleged that Intel paid computer makers rebates to keep their usage of AMD chips down and by selling chips below cost to thwart AMD from taking key accounts.

The hefty fine, which was first reported on Monday, comes a day after Intel's CEO told an investor conference that the second quarter has been "better than expected."

That good news counterbalanced the EU's fine, as Intel shares dipped only 0.5% at $15.13. AMD shares tacked on 0.7% to end the day at $4.38.

Elsewhere, Bloomberg reported that the bankruptcy process for Chrysler may last as long as two years, which is significantly longer than the 60-day plan the Obama administration had announced.

An administration official told Bloomberg the 60 days projected by President Obama at an April 30 press conference announcing Chrysler's bankruptcy only applies to a sale of Chrysler's best assets to a new entity, not other unwanted assets such as factories.

Among other stocks, Freddie Mac (FRE Quote) is in need of more government money. After Tuesday's closing bell, the mortgage giant reported a first-quarter loss that ballooned from a year ago as credit losses soared. However, the loss narrowed from the fourth quarter. Freddie Mac also said it needs $6.1 billion in additional government aid. Shares dropped 7% to close at 80 cents.

Citigroup's (C Quote) Primerica Financial Services unit is reportedly looking for bids. A Bloomberg report said the Citi subsidiary approached private-equity firms, including J.C. Flowers, Blackstone Group (BX Quote) and TPG, to gauge their interest in buying the division's sales arm. Citi shares gave back 6.8% to $3.41.

Elsewhere, Japanese bank Mitsubishi UFJ Financial (MTU Quote) plans to increase its recent share purchase in Morgan Stanley (MS Quote) to 29.375 million for a total of $705 million. On Monday, the company said it would buy 25 million shares in Morgan. The stock shed 5% to $25.10.

On the earnings front, Macy's (M Quote) reported a first-quarter loss that widened from a year ago, but was better than analysts were expecting. Despite maintaining its forecast for the full year, Macy's shares lost 6.7% to $11.52.

Dr Pepper Snapple (DPS Quote) reported first-quarter earnings that rose from a year ago, exceeding estimates. The company also offered a full-year view that was better than most expected. Shares finished up 3.8% to $22.07.

Commodities were mixed. Oil lost 83 cents to $58.02 a barrel even after the Energy Department said crude and gasoline inventories fell last week. Natural gas declined 12 cents to $4.33 per million British thermal units. Gold rose $2 to $925.90 an ounce, while copper gave back 5 cents to $2.03 a pound.