The Commerce Department report was sobering because consumer spending accounts for more than two-thirds of U.S. economic activity. The reading came as Wall Street was refocusing its attention on the faltering economy following stepped up government efforts to revive the stagnant credit markets.
The release of the Beige Book, the assessment of business conditions from the Federal Reserve added, to investors' worries. The report found that the economy continued to slow in the early fall as financial and credit problems took a turn for the worse. The central bank's report supported the market's belief that difficulties in obtaining loans have choked growth in wide swaths of the economy.
Analysts have warned that the market will see continued volatility as it tries to recover from the devastating losses of the last month, including the nearly 2,400-point plunge in the Dow over eight sessions. Such turbulence is typical after a huge decline, but the market's anxiety about the economy was also expected to cause gyrations expected in the weeks and months ahead.
Investors apparently have come to believe that Monday's big rebound, a response to the government's plan to invest $250 billion in banks to get the lending business restarted, was based on too much optimism about the country's problems.
Doubts about the economy were already surfacing in Tuesday's session, when investors halted an early rally and began collecting profits from stocks' big Monday advance. Wednesday's data confirmed the market's fears that the economy is likely to remain weak for some time, and that corporate profits are likely to suffer.
Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas, said moves by European and U.S. government officials to begin investing directly in banks are easing worries about credit. But the steep pullback in stocks that began last month after the credit markets lurched to a near standstill has now created worries that consumers will spend less after seeing the value of their retirement accounts and other investments drop.
In midafternoon trading, the Dow fell 495.01, or 5.32 percent, to 8,815.98 after falling more than 572.67 shortly after the release of the Beige Book.
Broader stock indicators also skidded. The Standard & Poor's 500 index fell 63.36, or 6.35 percent, to 934.65, and the Nasdaq composite index fell 97.12, or 5.46 percent, to 1,681.89.
With Wednesday's drop likely to hold, the Dow will, after a one-day break, resume a string of triple-digit losses or gains. On Tuesday, after swinging erratically throughout the session, the blue-chip index closed the day down a moderate 76 points.
The stock market is struggling to recover from last week's terrible run, which erased about $2.4 trillion in shareholder wealth and brought the Dow to its lowest level since April 2003. The tumble occurred amid a seize-up in lending stemming from a lack of trust among institutions in response to the bankruptcy of investment bank Lehman Brothers Holdings Inc. and the failure of Washington Mutual Inc., which had been the nation's largest thrift.
The credit markets have been showing tentative signs of recovery, though they remain strained, and demand for safe assets remains high. The three-month Treasury bill on Wednesday was yielding 0.33 percent, up from 0.30 percent on Tuesday. Overall yields remain low, showing that demand is so high that investors are willing to earn meager returns as long as their principal is preserved.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.98 percent from 4.03 percent late Tuesday.
Meanwhile, the Labor Department said the producer price index, which measures inflation pressures before they reach the consumer, fell 0.4 percent in September, driven by lower energy costs. That decline matched analysts' expectations.
Late Tuesday, Intel Corp., the world's largest maker of PC microprocessors, beat analysts' estimates and posted a third-quarter profit increase of 12 percent. Intel fell 53 cents, or 3.3 percent, to $15.40.
JPMorgan's results topped forecasts but the problems seen in all types of loans, not just home equity debt but also prime mortgages and credit cards, is worrisome for the banking industry. The stock fell 29 cents to $40.42.
Wells Fargo rose 58 cents, or 1.7 percent, to $34.10 after its report.
Light, sweet crude fell $3.88 to $75.07 a barrel on the New York Mercantile Exchange.
The drop in oil to a 13-month low hit energy stocks. Exxon Mobil Corp. fell $7.67, or 10.6 percent, to $64.79. Chevron Corp. fell $6.18, or 9 percent, to $62.36.
Declining issues outnumbered advancers by about 7 to 1 on the New York Stock Exchange, where volume came to 869.5 million shares.
The Russell 2000 index of smaller companies fell 39.01, or 7.03 percent, to 515.64.
In Asian trading, Hong Kong's Hang Seng Index lost nearly 5 percent after rising more than 13 percent the previous two days. Markets in Australia, South Korea, China, India and Singapore also sank. Japan's Nikkei 225 index, however, ended up 1.1 percent after soaring 14 percent in the previous session.
In Europe, Britain's FTSE 100 fell 7.08 percent, Germany's DAX index fell 6.49 percent, and France's CAC-40 fell 6.82 percent.
