More glum news on consumer spending and a reversal in the Treasury Department's plan to buy troubled mortgage-related debt from the country's banks combined to drive the stock market to its third straight loss Wednesday.
The Dow Jones industrial average sank more than 400 points as it and other major stock indexes fell about 5% to near or below their Oct. 27 lows, which investors had hoped would serve as a floor under stock prices.
Oil prices continued their long slide, closing in on the $55 level, in response to the bleak global economic outlook. But that piece of good news for consumers failed to console investors rattled by an ominously worded warning from electronics giant Best Buy Co., which said a "seismic" drop in consumer spending had created "the most difficult climate we've ever seen."
The bluntly downbeat earnings forecast from the leading electronics retailer followed a recent wave of bad news from other consumer-oriented companies such as Starbucks Corp., MasterCard Inc. and major automakers.
The gloomy reports have highlighted the degree to which a precipitous decline in consumer spending, which has accounted for more than two-thirds of U.S. economic activity, is imperiling the economy.
"The signs continue to point to a slowing economy," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Ore. "Best Buy was the punctuation mark at the end of a long stick that said, 'This is real.' "
The Dow sank 411.30 points, or 4.7%, to 8,282.66. The blue-chip indicator is just 100 points above its Oct. 27 close of 8,175.77, its lowest level in 5 1/2 years.
The Standard & Poor's 500 index fell 46.65 points, or 5.2%, to 852.30. It is barely three points above its recent low.
The Nasdaq composite index hit a new trough, slumping 81.69 points, or 5.2%, to 1,499.21.
On the New York Stock Exchange, only one stock rose for every 11 that fell.
General Motors was the only stock that gained among the Dow's 30 components as congressional Democrats drafted legislation to send rescue funds to Detroit's automakers. GM rose 16 cents to $3.08, while Ford Motor gained 4 cents to $1.84.
The financial sector was beaten down after Treasury Secretary Henry M. Paulson said his department was ditching its plan to purchase troubled assets from banks -- the centerpiece of the government's original $700-billion bailout plan -- in favor of injecting capital directly into financial institutions.
Although investors had welcomed the capital infusions, they were disappointed that the government would not be taking billions of dollars in toxic assets off bank balance sheets.
An index of financial stocks in the S&P; 500 tumbled 6.9% to a fresh 12-year low. Shares of Morgan Stanley slumped 15%, while Citigroup and Goldman Sachs Group each lost 11%. Bank of America dropped 9% and Wells Fargo fell 5.2%.
The value of bonds backed by subprime mortgages sank to new lows after Paulson's announcement, based on an index of so-called swaps tied to such bonds. The index's level suggests that the bonds, originally rated AAA, would fetch 42 cents on the dollar.
Energy shares sank 7.2%, more than any other broad industry group in the S&P; 500, after oil futures slid $3.17 to $56.16 a barrel. Crude is down more than 60% from its record high set in July.
On the retail front, the warning from Best Buy spooked investors because it reinforced a growing realization that consumers are stepping back from purchases of big-ticket items such as computers, furniture, vacations and automobiles.
The Richfield, Minn., company said sales at stores open at least a year might drop as much as 15% in the four-month period that began Nov. 1 compared with a year earlier.
The forecast came two days after rival Circuit City Stores Inc. filed for bankruptcy protection.
Best Buy's stock fell 8%. An S&P; index of shares in big companies that sell discretionary goods to consumers lost 5.7%.
Investors in retail stocks are increasingly worried about the all-important holiday shopping season, with some analysts predicting that sales might fall from last year.
Shares of Macy's tumbled 11% after the department store chain said a 7% drop in sales resulted in a third-quarter loss. The company said the holiday season would be a "nail-biter."
Consumers are pulling back on spending as they -- voluntarily or involuntarily -- reduce their use of consumer loans, home equity lines of credit, car loans and credit cards, said Stephen Wood, a senior portfolio strategist at Russell Investments in New York. The trend resembles moves by investment banks and hedge funds to cut back on borrowing.
"Now you're seeing consumers deleveraging," he said, "and it isn't going to take just a couple of months."
In other market highlights:
* Google fell 6.6% to $291, dropping below $300 for the first time in three years, after analysts cut estimates of the Web giant's fourth-quarter earnings.
* Yields on government debt fell as investors sought the safety of Treasury securities. The three-month T-bill's yield fell to 0.14% from 0.22% late Monday, and the yield on the benchmark 10-year T-note fell to 3.66% from 3.75%.
Times wire services were used in compiling this report.