Stocks Nosedive Into the Close, Sink More Than 2.5%

Stocks end a choppy trading day with losses as the fate of the troubled automakers hangs in the balance. Frank Curzio reviews the action in The Real Story (above).
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Updated from 2:59 p.m. EST

After fluctuating throughout much of Thursday's session, stocks on Wall Street sold off into the close as the fate of the troubled U.S. automakers hung in the balance and traders shied away from buying stocks in advance of Friday's November jobs report.

The

Dow Jones Industrial Average

sank 215.45 points, or 2.5%, to 8376.24, and the

S&P 500

lost 25.52 points, or 2.9%, to 845.22. The

Nasdaq

fell 46.82 points, or 3.1%, to 1445.56.

Scrambling to stay afloat, the automakers were again in focus on Thursday. Earlier in the week,

General Motors

(GM) - Get Report

,

Ford

(F) - Get Report

and

Chrysler

headed to Capitol Hill to seek government help as they navigate a precarious market climate. On Thursday, the CEOs of the Big Three returned to D.C. to testify before Congress about potential bailout legislation.

They told lawmakers that they would accept government oversight, even a

Chrysler-GM merger

, in exchange for funding, but that they insisted they needed immediate aid.

As the session closed, it remained unclear whether funding would come from the government's $700 billion Troubled Asset Relief Program, new legislation, or elsewhere.

The Wall Street Journal

reported that the

Federal Reserve

may refuse to lend directly to the automakers, a decision that would hand the companies' futures over to Congress and the Bush administration.

Bloomberg

reported that management at GM and Chrysler were contemplating a prearranged bankruptcy as a means to get government funds.

GM shares tanked 16% to $4.11, and Ford plummeted 6.7% to $2.66.

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"There's a lot of question marks starting to be raised about whether this GM bailout is going to come through," said Paul Mendelsohn, chief investment strategist at Windham Financial. Mendelsohn said that wrangling among government agencies and Congress was adding to the uncertainty

Bearish action in commodities, and a dramatic selloff in oil, were also contributing to a selloff in the energy sector, said Mendelsohn.

Crude oil

slumped $3.12 to settle at $43.67 a barrel. Gold was unchanged at $765.50 an ounce. The

Energy Select Sector SPDR

(XLE) - Get Report

, which tracks energy stocks, fell 6.9% to $43.26.

"It's relentless. It's all over the place," said Windham's Mendelsohn of the selling. He said that a failure by gold to rally on weakness in the dollar indicates that hedge-fund liquidation was probably adding to the volatility.

Phil Flynn, vice president and energy analyst at Alaron Trading, said that previous growth in demand for oil had been fueled by cheap credit. "With the global slowdown and the unavailability of credit, it's going to be very difficult to maintain those price levels," he said. "Don't be surprised to see $35 a barrel. ... We could be in a new era of lower energy prices for years to come."

He said that after investors realized that the developing world's growth was not insulated from credit troubles among developed countries, "We've gone from running out of oil to having an oil glut. We have more oil than we know what to do with." Flynn said there will eventually be another boom cycle for oil, but it's years away.

Investors were also concerned about holding long positions in advance of Friday's jobs report from the Department of Labor, said Windham's Mendelsohn.

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There were plenty of reminders that the number could be ugly; layoffs and salary reductions dominated the day's early headlines. Executives at

Citigroup

(C) - Get Report

, along with director and senior adviser Robert Rubin, were willing to go without bonuses this year, according to a report by the

Financial Times

. Shares dropped 5.4% to $7.40.

Swiss bank

Credit Suisse

(CS) - Get Report

announced plans to cut 5,300 jobs and said it expects to report a $2.5 billion fourth-quarter loss. The stock rose 5.6% to $24.76.

In other financial-sector news,

The Wall Street Journal

reported that credit card company

Capital One

(COF) - Get Report

intends to buy

Chevy Chase Bank

for $520 million in a cash-and-stock deal. Shares declined 1.9% to $30.99.

The bout of layoffs and tempered guidance was not confined to the financials. Telecom company

AT&T

(T) - Get Report

announced workforce reductions of 12,000, or about 4% of its employees, while

DuPont

(DD) - Get Report

set plans to cut 2,500 workers.

AT&T dropped 3.1% to $28.17, and DuPont edged up 0.3% to $23.69.

"I'm not surprised," said Fred Dickson, chief market analyst at DA Davidson. "Given the depth of the recession, we're just going to see more of the same over the next three to six months." He also said that AT&T's planned layoffs, at 4%, weren't shockingly large, however. "In a given year, that may be close to a normal turnover amount anyway."

Software firm

Adobe Systems

(ADBE) - Get Report

reported preliminary fourth-quarter results that were ahead of expectations, but also announced plans for an 8% reduction in headcount. Shares skidded 9.3% to $20.44.

Media concern

Viacom

(VIA) - Get Report

also announced job cuts and said it would put a raise freeze on some senior-level positions. The stock slipped 0.7% to $15.90.

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In the pharmaceutical space,

Merck

(MRK) - Get Report

reaffirmed its 2008 earnings projections but projected 2009 results would fall short of analysts' current estimates, sending shares down 5.5% to $25.

Homebuilder

Toll Brothers

(TOL) - Get Report

said its fourth-quarter loss narrowed year over year and said its revenue in the coming year would fall substantially from current levels. The stock jumped 6.9% to $20.55.

In one bright spot, retail giant

Wal-Mart

(WMT) - Get Report

announced its same-store sales rose 3.4% in November. Shares ticked up 1.3% to $55.11.

Across the board, however, the

November same-store sales

picture was less encouraging.

Costco

(COST) - Get Report

,

Limited

(LTD)

and

Pacific Sunwear

(PSUN)

were among companies to announce slackening sales.

Turning to economic data, the Labor Department said jobless claims for the week ended Nov. 29 fell 21,000 to 509,000. The result was better than economists' forecast of 540,000 claims for the week. Separately, the Census Bureau's October read on factory orders showed a 5.1% decline, a larger drop than the 4% consensus estimate.

Speaking in Washington,

Federal Reserve

Chairman Ben Bernanke said that the government needs to take further steps to stop home foreclosures. He said that one option is for the government to buy troubled mortgage securities, and another is for federal agencies to help shoulder the costs of reductions in borrowers' monthly payments.

As the financial crisis was felt overseas, the Bank of England cut its key interest rate by one percentage point to 2%, and the

European Central Bank

reduced its rate to 2.5% from 3.25%. France also announced a $33 billion economic stimulus plan.

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Longer-dated U.S. Treasury securities were rising in price. The 10-year note was up 32/32, yielding 2.55%, and the 30-year was adding 2-6/32 to yield 3.06%. The dollar was lately gaining on the euro and pound but falling vs. the yen.

Abroad, European exchanges, including the FTSE in London and the DAX in Frankfurt, were trading lower. In Asia, Japan's Nikkei and Hong Kong's Hang Seng finished on the downside.