Stocks Slump as Banks, GM Sell Off

The Dow, S&P and Nasdaq are all down sharply. GM and Bank of America are among the biggest decliners.
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Updated from 2:47 p.m. EST

Stocks in New York started the holiday-shortened week on a down note with steep losses amid more dour economic data and corporate news.

The

Dow Jones Industrial Average

fell 297.81 points, or 3.8%, to 7552.60, and the

S&P 500

gave up 37.67 points, or 4.6%, to 789.17. The

Nasdaq

was lessened by 63.70 points, or 4.2%, ending at 1470.66.

"Right now everybody is going to watch and see if the November lows are going to hold," says Jeffrey Saut, chief investment strategist at Raymond James, earlier in the day. The Dow was a fraction of a point off its Nov. 20 close, 7552.29, by the session's end, while the Nasdaq and S&P had a bit more of a buffer.

Next to

General Motors

(GM) - Get Report

, banks were the poorest performers on the

Dow

, with

Bank of America

(BAC) - Get Report

losing 12% to $4.90,

Citigroup

(C) - Get Report

down 12.3% to $3.06, and

JP Morgan Chase

(JPM) - Get Report

off by 12.3% at $21.65. GM dropped 12.8%.

Meanwhile, President Barack Obama signed the $787 billion stimulus package into law, but that did nothing to inspire buying among traders.

"This is the beginning of the end," said the president, calling the package "a balanced plan with a mix of tax cuts and investments." The plan is "bold and balanced" and "will meet the demands of this moment," he added. "We're putting Americans to work, doing the work that America needs done."

President Obama is expected to flesh out a plan to help distressed homeowners avoid foreclosures on Wednesday. Thus far though, the government programs of 2009 haven't produced confidence on Wall Street.

"We are not defining where this money will go very well," says Walter Gerasimowicz, chairman and CEO of Meditron Asset Management."Very simply, the stock market is not convinced. We're hoping to glide through this as the economy heals itself over time. Unfortunately, that's not going to happen because the root causes are not being addressed."

Investors are "clearly negative and rightfully so after what happened last week," says Jeffrey Saut, chief investment strategist at Raymond James, referring to Treasury Secretary Tim Geithner's presentation of the next-step bank rescue plan, which many traders found to be vague and lacking in detail. "The Geithner plan was a plan to have a plan and was a total disappointment. Now, the market is in show-me mode."

Elsewhere,

GM and Chrysler

are turning in their restructuring plans and details on their eventual paths to profitability to the government. The plans will be followed by negotiations leading to the March 31 deadline for the final versions of the reports. GM and Chrysler have already taken $13.4 billion collectively in government help and have billions more hanging in the balance.

One reading on economic activity, the New York Federal Reserve Bank's Empire State manufacturing index, was much worse than expected, at negative 34.65, vs. a forecast of negative 22.2. The new reading is a record low, but it's not a shock, writes Tony Crescenzi, chief bond analyst at Miller Tabak and a contributor to

RealMoney.com

.

In essence, the New York region played catch-up in February, says Crescenzi. "If there is one message from the Empire survey not available in other data, it is the idea that weakness in technology spending deepened in February, as the New York Empire survey's resilience was in part because the New York region represents the new economy well, as opposed to other regions," which rely heavily on traditional manufacturing.

Earnings gave a mixed picture.

Wal-Mart

(WMT) - Get Report

said that its fourth-quarter profit fell 7.6% as it suffered from a strong dollar, but still managed to beat analyst expectations after discounting charges. Wal-Mart was the strongest component on the Dow, with shares rising 3.7% to $48.24.

Mercedes-Benz manufacturer

Daimler

(DAI)

reported a fourth-quarter loss of $1.9 billion, and warned car sales could fall another 10% in 2009 in light of the weak economy.

Another struggling company,

Trump Entertainment Resorts

(TRMP)

, filed for Chapter 11 bankruptcy protection. The casino operator reportedly had assets of about $2.1 billion and total debts of about $1.74 billion on Dec. 31. Donald Trump said Friday that he's resigning from the casino operator's board. Trump Entertainment Resorts fell 21.7% on Tuesday, dwindling to 18 cents a share.

In a last-minute deal,

Liberty Media

(LINTA)

swooped in to save

Sirius XM Radio

(SIRI) - Get Report

with a $530 million loan infusion, giving it a 40% stake in the satellite-radio shop. Sirius agreed to pay a 15% interest rate on the Liberty Media loans as it sought to fend off a takeover bid from

Dish Network

(DISH) - Get Report

operator Charles Ergen.

Sirius shares added 53%, bringing them to 16 cents apiece.

News of more layoffs also came as nearly 800 positions at a steering division of

Delphi Corp.

will be eliminated March 1. Delphi, which has been operating under bankruptcy protection since October 2005, has a pending deal to sell the steering division to private equity firm Platinum Equity.

Not helping investor confidence, reports say that U.S. securities regulators have accused three top executives from

Stanford Financial Group

, including R. Allen Stanford, of fraud. The Houston-based firm, which says it oversees more than $50 billion of assets, reportedly closed for the day after federal agents entered the office.

The dollar was strengthening against the pound and euro, but was recently weaker against the yen. Longer-dated Treasuries were rising. The 10-year note was recently up 2-8/32, yielding 2.6%, and the 30-year was adding 3-20/32, yielding 3.5%.

In commodities,

oil was down

$2.54 to $34.97 a barrel. Gold rose $25.30 to settle at $967.50 an ounce.

"Right now the market has to wake up to the fact that we have record supplies at the delivery point," says Phil Flynn, Alaron energy analyst. "It's hard to ignore the fact that we have record oil in front of the expiration."

Oil rallied $3.53 on Friday, ahead of the three-day weekend, but says Flynn, "cooler heads are prevailing."

Stocks overseas were lower. In Europe, the FTSE in London and DAX in Frankfurt gave up more than 2% each. In Asia, Japan's Nikkei and Hong Kong's Hang Seng shed 1.4% and 3.8%, respectively.