Stocks Drop As Credit And Economy Worries Rise

NEW YORK (Reuters) - Stocks slid sharply on Thursday as signs of further deterioration in credit conditions sparked fears about the potential impact on the economy and profits.

A much weaker-than-expected reading in a gauge of economic activity in the Mid-Atlantic region added to already frayed nerves and sent stocks sliding, triggering downside trading curbs on the New York Stock Exchange.

After the numbers from the Philly Fed came out, the Nasdaq erased all its gains for the year.

All three major indexes were 10 percent below their 52-week highs from mid-July. That is a threshold professional investors label a market correction, as opposed to a signal that a bull market has ended. Bear markets are defined by a 20 percent drop in prices from their highs.

The latest blow to investor confidence came from the mortgage sector. Countrywide Financial Corp., the biggest U.S. mortgage lender, said it had to draw down an entire $11.5 billion bank credit line to fund its operations after it was essentially shut out of other credit markets.


"There are credit fears, commercial paper fears, asset- backed market fears and then you throw in weak numbers like the Philly Fed," said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

"If you start seeing the theme of slower economic activity, that is not going to be good for stocks."

The Dow Jones industrial average was down 307.60 points, or 2.39 percent, at 12,553.87. The Standard & Poor's 500 Index was down 34.16 points, or 2.43 percent, at 1,372.54. The Nasdaq Composite Index was down 67.81 points, or 2.76 percent, at 2,391.02.

© Reuters 2007. All rights reserved.