NEW YORK (Reuters) -
Stocks tumbled on Wednesday, dragging
the S&P 500 into a bear market, as worries about more credit
losses hurt financial companies and Cisco Systems led
technology shares lower after its CEO raised fears of an
extended economic downturn.

The S&P closed 20 percent below its all-time high set in
October, making it the last of the three major U.S. stock
indexes to fall into a bear market. Stocks have been roiled for
months by the credit crisis and a severe U.S. economic
slowdown.

In the latest news to scare the market, Cisco's (CSCO.O)
John Chambers told Reuters that customers of the company, which
makes Internet infrastructure, see the economy picking up early
in 2009 rather than later this year. At least two brokerages
also cut their price targets on the stock.

Fannie Mae (FNM.N) and Freddie Mac (FRE.N) dropped sharply
as some investors worried that the two pillars of the U.S.
housing market will need to raise billions of dollars in
additional capital through stock sales, diluting the holdings
of current investors.

Merrill Lynch (MER.N) shares fell more than 9 percent,
after Fitch Ratings said it may cut the U.S. investment bank's
debt rating, given expected ongoing write-downs and diminished
prospects for earnings.

"There is uncertainty about financials as we're going into
the earnings season about what write-offs and capital raising
might be needed," said Bucky Hellwig, senior vice president at
Morgan Asset Management, in Birmingham, Alabama.

"There is also concern that as the earnings reports come
out, that the projections for future performance for technology
may not be as strong due to the weakness in economy."

All three major stock indexes fell more than 2 percent: The
Dow Jones industrial average (.DJI) shed 236.77 points, or 2.08
percent, to 11,147.44, while the Standard & Poor's 500 Index
(.SPX) tumbled 29.01 points, or 2.28 percent, to 1,244.69. The
Nasdaq Composite Index (.IXIC) fell 59.55 points, or 2.60
percent, to close at 2,234.89.

On the Nasdaq, Cisco shares fell 5.7 percent to $21.58. UBS
said it expects enterprise spending to remain challenging.
Shares of other big technology companies also fell, with
chip-maker Intel (INTC.O) down 5.3 percent at $19.81.

IBM's (IBM.N) shares fell 2.8 percent to $120.40 and were
the top drag on the Dow.

Concerns about the economy also hit big manufacturers such
as General Electric (GE.N) and 3M Co (MMM.N), both with losses
of more than 3 percent. GE shares fell 3.1 percent to $27.19 on
the New York Stock Exchange, while shares of 3M dropped 3.4
percent to $68.64.

Even Alcoa Inc (AA.N) was unable to hold on to gains a day
after the aluminum producer posted second-quarter results that
beat analysts' estimates. Shares fell 2.4 percent to $31.54.

Freddie Mac shares slid 23.8 percent to $10.26 while Fannie
Mae lost 13.1 percent to $15.31.

The S&P financial sub-index (.GSPF) dropped 5.2 percent,
its biggest one-day decline in more than six years.

Merrill shares fell 9.3 percent to $29.74 and Bank of
America (BAC.N) stock lost 6.3 percent to $22.06.

Bank of America's chief executive said it may feel to some
people for the next year as if the economy is in recession.

Analysts are now expecting a 13.5 percent drop in
second-quarter earnings of S&P 500 companies, according to the
average estimate of analysts polled by Thomson Reuters. That's
compared to the 2 percent drop they were expecting in April.

Trading volume was moderate on the New York Stock Exchange,
with about 1.49 billion shares changing hands, below last
year's estimated daily average of roughly 1.90 billion, while
on Nasdaq, about 2.28 billion shares traded, above last year's
daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by about 2 to 1
on both the NYSE and the Nasdaq.

(Editing by Jan Paschal)

Source

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