Update from 3:53 p.m. EST

Stocks on Wall Street took a severe pummeling and closed with heavy losses Thursday, as economic data releases pointed to a prolonged downturn and companies reported job cuts, weak earnings and flagging sales.

The Dow Jones Industrial Average sank 443.48 points, or 4.9%, to 8695.79, and the S&P 500 gave back 47.89 points, or 5%, to 904.88. The Nasdaq shed 72.94 points, or 4.3%, to 1608.70.

In rising off its Oct. 27 lows, the market went from an oversold level to overbought in a very short period, said Robert Pavlik, chief investment officer at Oaktree Asset Management. "It's working off some of that overbought condition," he said. The market has overreacted to a thawing credit market, he said. "I still think there's weakness ahead that just hasn't been factored in."

Pavlik also said that the market has been trading on low volume, meaning that buyers have not committed to making a stand. "I think what you're seeing now is the folks that did that recent buying from the lows of the 10th or the 27th on the hopes of catching something, some kind of major reversal are now getting out of it."

"We're still in an environment where you can't trust any rallies," said Chip Hanlon, president of Delta Global Advisors. He said that although the stock market should turn higher before the economy does, the broader economy is due to stagnate for as much as nine more months.

However, Hanlon also said that if the Obama administration proves disinclined to raise taxes in the face of a weak economy, that could provide an upside that the market is currently not expecting.

As credit markets remained stagnant and the risk of inflation appeared to decline, the European Central Bank and the Bank of England both reduced their key interest rates Thursday. The ECB dropped its target rate 50 basis points to 3.25%, and the Bank of England slashed its rate 1.5% to 3%.

Hanlon said that the market was anticipating rate cuts from Europe, and that there are more to come. "The global economy is still deleveraging. You're going to see more actions like these from central banks around the world," he said.

Additional corporate headlines were offering signs of trouble. Bloomberg reported that Citigroup ( C) and Goldman Sachs ( GS) have begun laying off staff as part of a plan to eliminate more than 12,000 jobs combined as the financial crisis continues.

Citigroup shares dropped 8.8% to $11.52, and Goldman tumbled 7.7% to $80.72.

Separately, mutual fund operator Fidelity Investments said it is cutting its head count by about 1,300 and will make additional staff reductions in early 2009.

Another report by Bloomberg indicated that Cerberus Capital may give up its stake in GMAC, which it owns jointly with GM ( GM). The move is intended to allow GMAC to become a bank and secure funding from the government without subjecting Cerberus to additional regulation. GM lost 14% to $4.80.

Elsewhere in the financial space, Wells Fargo announced late Wednesday it would issue $10 billion in common stock, sending shares down 9.2% to $28.77.

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In the technology arena, Intel ( INTC) CEO Paul Otellini reportedly warned at a technology conference that the U.S. is in a recession that will last for two or three quarters. The stock slipped 7.9% to $13.87.

Yahoo! ( YHOO) CEO Jerry Yang, meanwhile, said late Wednesday that he's prepared to negotiate a new deal with Microsoft ( MSFT), according to a report by the Associated Press. Yahoo! had earlier this year rejected a takeover offer by Microsoft at $33 a share.

Yahoo! shares edged up 0.3% to $13.96, while Microsoft shed 5.4% to $20.88.

As for economic data, the Department of Labor reported that jobless claims for the week ended Nov. 1 tallied at 481,000, higher then economists' estimate of 476,000. The previous week's figures were revised up to 485,000 from an initial tally of 479,000.

Meanwhile, the Bureau of Labor Statistics also announced that its preliminary read of nonfarm productivity came in at 1.1%, just ahead of analysts' forecasts but down substantially from 3.6% in the second quarter.

Investors were sorting through a new heap of quarterly earnings results:
  • Tech bellwether Cisco (CSCO) reported profit that was flat year over year even but issued cautious revenue guidance. The stock skidded 2.6% to $16.94.
  • Media firm News Corp. (NWS) reported declining profit and cut its 2009 guidance, and shares stumbled 16% to $8.31.
  • Brewery Anheuser-Busch (BUD) reported that its third-quarter results declined 5.7% year over year thanks to charges related to its upcoming sale to European beverage concern InBev. Anheuser-Busch shares climbed 1.5% to $64.58.
  • Carmaker Toyota (TM) said second-quarter net income declined and it cut its full-year profit forecast. Shares plummeted 17% to $67.09.
  • Asset manager Blackstone (BX) swung to a loss. The company cited tumultuous credit and equity markets as a source of its troubles. Its stock gave back 12% to $7.55.
  • Utility company PG&E (PCG) reported income that increased 9% year over year and reaffirmed its 2008 and 2009 forecasts. Shares edged down 5.3% to $34.36.

Retailers were also rolling out same-store sales figures for October. Big-box retail firm Costco ( COST) reported that its same-store sales were down 1%, although total revenue edged up 2%. The same-store figure fell short of analyst estimates. Fellow bulk merchant Wal-Mart ( WMT) announced a better-than-expected 2.4% increase in same-store sales.

Costco slipped 0.4% to $53.51, and Wal-Mart skidded 1.2% to $53.49.

Biotech Select

"In a deleveraging world, that includes the consumer, who is trying to figure out how not to take on more debt for the first time in a long time," said Hanlon of Delta Global. He said that high-end and leisure retailers should continue to feel a pinch, while discount stores like Wal-Mart will continue to benefit.

Elsewhere among retailers, Amazon.com ( AMZN) suffered a Citigroup downgrade to hold from buy. Shares declined 9.2% to $47.22.

In other analyst actions, Goldman reduced its price target for News Corp. to $9 from $13 after the media company's earnings results missed estimates.

In the commodities space, crude oil was down $4.51 to settle at $60.77 a barrel. Gold dropped $10.20 to close at $732.20 an ounce.

Longer-dated U.S. Treasury securities were mixed. The 10-year note was higher by 2/32, yielding 3.7%, and the 30-year was declining 11/32 to yield 4.2%. The dollar was gaining on the euro and pound but falling vs. the yen.

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Globally speaking, European exchanges, including the FTSE in London and the DAX in Frankfurt, were trading lower. Asian markets likewise closed to the downside.