NEW YORK—U.S. stocks plunged on Tuesday after a record quarterly loss at top U.S. bank Citigroup Inc and a surprise drop in December retail sales fueled fears that the economy was heading into a recession.
Citigroup posted a fourth-quarter loss of $9.83 billion on the back of losses tied to subprime home loans and other risky debt, sending its shares down 7.2 percent. That added to concerns that the worst of the impact on financial companies from the global credit crisis may be far from over.
In order to help shore up its balance sheet, Citi said it plans to raise $14.5 billion from outside investors, slash its dividend and cut 4,200 jobs.
The Commerce Department said retail sales unexpectedly fell in December, to close out the weakest year at the cash register since 2002, implying costlier energy and falling home prices deterred spending during the holiday shopping season.
"Part of what I think is gripping the market is the recognition that this credit cycle is going to extend beyond poor mortgages and is a much broader-based problem than previously perceived," said Matt Kaufler, manager of the Touchstone Fund.
"It seems the higher energy prices and the higher food prices are all really starting to weigh on consumer spending, and when you take all this together, the market is concluding that lower prices are warranted."
The Dow Jones industrial average fell 215.66 points, or 1.69 percent, to 12,562.49. The Standard & Poor's 500 Index was down 29.14 points, or 2.06 percent, at 1,387.11. The Nasdaq Composite Index was down 50.36 points, or 2.03 percent, at 2,427.94.
Citigroup shares were down 7.2 percent at $26.98. Shares of Merrill Lynch & Co, which also announced a plan on Tuesday to raise capital, were down 2.8 percent at $54.41. Bank of America Corp's stock fell 2.9 percent to $38.07.
The latest retailer with disappointing news was home goods store Williams-Sonoma, which cut its outlook on Tuesday after a weak holiday sales season.
Williams-Sonoma shares slid 10.7 percent at $19.80.
Energy stocks also pushed down the market after U.S. crude oil futures fell 2.7 percent. Oil field services company Schlumberger Ltd's shares lost 4,1 percent to $91.63 and Valero Energy fell 6.6 percent to $55.93. Exxon Mobil led both the S&P and the Dow lower, dropping 1.7 percent to $89.24.
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