Economic Blues Sink Blue Chips 337 Points

Updated from 3:59 p.m. EST

Stocks in New York retreated from a brief afternoon rally to close with losses Friday, as traders assessed the worst retail-sales decline on record and companies continued to signal that economic hardship would hurt future profit.

The Dow Jones Industrial Average lost 336.85 points, or 3.8%, to 8498.42, and the S&P 500 gave back 38 points, or 4.2%, to 873.29. The Nasdaq shed 79.85 points, or 5%, to 1516.85.

For the week, the Dow fell 5%, the S&P 500 dropped 6.2% and the Nasdaq tumbled 7.9%.

The market made a technical reversal Thursday, and now the major averages are coming off of the levels that rally produced, said Peter Cardillo, chief market economist at Avalon Partners. He foresees the market staging short-term reactions to economic data releases. "Until the market gets comfortable with the depth and ... the time frame of the recession, it's just going to be a trading affair," he said.

Several of the day's economic data points were dragging on the market. The Census Bureau reported that October retail sales declined a record 2.8%, following a 1.3% decline in September. Economists were expecting a 2.1% decrease. Excluding autos, sales slumped 2.2%, also a record.

Writing for his RealMoney.com blog, bond market strategist Tony Crescenzi said that much of the declines could be attributed to a nearly 13% decline in sales at gas stations. He said that the data indicate another sharp drop in the personal-spending component GDP after a 3.1% decline in the third quarter.

September business inventories declined 0.2%, showing a greater decrease than economists had expected. The August reading was also revised downward from 0.2% from 0.3%, according to the Census Bureau.

A preliminary November consumer-sentiment survey from the University of Michigan showed an index reading of 57.9, above the consensus estimate and slightly above October's reading of 57.6.

Although consumer confidence has held its ground, Cardillo said, "There was certainly no shift to the upside, which means that consumers are very concerned."

As the day's trading began, new signs emerged of the credit troubles that are continuing to rock the ailing financial sector. The Wall Street Journal reported that Citigroup ( C) is gearing up to cut 10,000 jobs and raise interest rates on many credit-card customers.

Elsewhere among financials, Dexia SA is getting set to sell its bond-insurance segment FSA Holding to Assured Guaranty ( AGO), shares of which added 4.6% to $8.47. Meanwhile, the BBC reported that the Royal Bank of Scotland ( RBS) is eliminating 3,000 jobs over the next several weeks. Shares dropped 5% to $15.37.

Meanwhile, Federal Reserve Chairman Ben Bernanke spoke at the European Central Banking Conference. Bernanke said that turmoil in the financial system has warranted international help and that markets remain severely strained. His speech comes as world leaders prepare for a summit in Washington over the next couple of days to discuss the worldwide financial meltdown.

Insider Insights

Ahead of the meeting, the U.S. government was rolling out several new initiatives to alleviate the crisis. The FDIC released details of a plan to use $24.4 billion to guarantee 2.2 million mortgages, thereby helping some 1.5 million Americans stay in their homes.

The President's Working Group on Financial Markets, meanwhile, offered a plan to improve regulation of derivatives and credit default swaps. The plan included a provision for the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission to share information on the market for credit default swaps.

At a time when financial and consumer firms were facing difficulties offering credit to customers, the Journal reported that software behemoth Microsoft ( MSFT) would offer 0% financing for clients who spend $20,000 to $1 million on its customer-management and accounting software. The stock slipped 5.6% to $20.06.

In the earnings department, Freddie Mac ( FRE), the mortgage company that has been among those central to the credit crisis, announced a $25.3 billion third-quarter loss. Shares dropped 8.2% to 67 cents.

Retailers were also showing signs of weakness. Department-store operator Kohl's ( KSS) reported declining profit and cut its full-year guidance. Nordstrom ( JWN) also cut its earnings outlook. Kohl's shares tumbled 4.8% to $29.09, and Nordstrom lost 9.4% to $11.74.

J.C. Penney ( JCP) said its profit dropped 53% year over year, and the department-store operator guided below analysts' estimates. Shares plummeted 10% to $17.27.

As for analyst actions, UBS lowered its rating on European pharmaceutical firm GlaxoSmithKline ( GSK) to neutral from buy, citing valuation. The stock edged down 2.6% to $36.25.

Biotech Select

Beyond earnings statements, Finnish cell phone firm Nokia ( NOK) said it expected industrywide sales volumes to decline as the economy weakens and currencies remain volatile. Shares fell 11% to $12.64.

Software maker Sun Microsystems ( JAVA) was also hunkering down in anticipation of harsh times, announcing that it would cut 5,000 to 6,000 jobs in an effort to cut costs. Sun shares added 1% to $4.12.

Airplane maker Boeing ( BA), meanwhile, said it would delay production and delivery of the new versions of its 747 freighters. Separately, one of Boeing's unions called for a vote on whether to give leadership authority to call a strike. The stock dropped 4.9% to $41.04.

Over in the commodities space, crude oil lost $1.20 to settle at $57.04 a barrel. Gold added $37.50 to close at $742.50 an ounce.

Longer-dated U.S. Treasury securities were rising in price. The 10-year was up 1-2/32 to yield 3.72%, and the 30-year was surging 2-8/32, yielding 4.22%. The dollar was rising vs. the euro and yen but weakening against the pound.

Action Alerts PLUS

Abroad, European exchanges, including the FTSE in London and the DAX in Frankfurt, were working their way higher. The European Union disclosed Friday that the 15 countries that use the euro are in recession.

In Asia, Japan's Nikkei and Hong Kong's Hang Seng closed with gains.

More from Markets

China Central Bank Governor Says Stay 'Calm and Rational' After Market Free Fall

China Central Bank Governor Says Stay 'Calm and Rational' After Market Free Fall

Marriott CEO on Tax Cuts, Trade War Worries and China's Economy

Marriott CEO on Tax Cuts, Trade War Worries and China's Economy

50 Stocks Goldman Sachs Thinks Can Triumph Over Wage Inflation

50 Stocks Goldman Sachs Thinks Can Triumph Over Wage Inflation

What Angela Merkel's Uncertain Political Future Means for Greece's Debt Woes

What Angela Merkel's Uncertain Political Future Means for Greece's Debt Woes

Trump Issues New Trade Threats, Apple, ZTE, GameStop - 5 Things You Must Know

Trump Issues New Trade Threats, Apple, ZTE, GameStop - 5 Things You Must Know