Recession fears batter stocks

NEW YORK (CNNMoney.com) -- Stocks tanked Tuesday after Citigroup's steep quarterly loss and a big drop in retail sales exacerbated fears of a recession.

The Dow Jones industrial average (INDU) lost around 274 points according to early tallies, the worst day of 2008. The decline left the Dow at a 9-month low.

The broader S&P 500 (INX) index lost 2.5 percent and fell to a 10-month low. The Nasdaq composite lost 2.5 percent and fell to a nearly 10-month low.

Treasury prices rallied as investors sought safety in government debt. Oil and gold prices fell.

Here's a look at what was moving near the close.

Citigroup (C, Fortune 500) reported an almost $10 billion quarterly loss that was worse than expected, slashed its dividend, and said it was taking an $18.1 billion writedown related to bad mortgage bets.

The company also said it was receiving a $12.5 billion cash infusion from investors in Kuwait, Singapore and the state of New Jersey. Shares slipped almost 7 percent. (Full story)

Citigroup is the latest financial leader to report weak profits and big writedowns amid the housing and credit market mess, adding to a sense of unease on Wall Street.

The stock market reaction right now is "logical," said Haag Sherman, managing director of Salient Partners, with investors catching up to and reflecting the current strained economic conditions.

He said investors are also starting to realize that monetary policy will not be enough to prop up equities this time. "I think there's a sense that the Fed can't help enough. Recession is on the way or already here."

The panic about the economy has investors clamoring for the Federal Reserve to cut interest rates more aggressively.

According to futures contracts on the Chicago Board of Trade, investors are now betting that the Federal Reserve will cut the fed funds rate, a key short-term interest rate, by a half-percentage point at its two-day meeting that ends Jan. 30. There is also the possibility that the central bank will cut rates by three-quarters of a percentage point, or 75 basis points. There are 100 basis points in one percentage point.

Ahead of that, the Federal Reserve said Tuesday it had auctioned $30 billion in funds to commercial banks at an interest rate of 3.95 percent. It was the third in a series of auctions the Fed has initiated to give banks much-needed cash.

While this is helping the banks, Sherman said because the banks are generally not in a position to extend credit, the auctions are not really helping consumers, with consumers continuing to be strapped, as the retail sales report demonstrated.

Retail sales fell 0.4 percent, short of forecasts and the biggest drop in six months. Excluding volatile auto sales, retail sales also fell a worse-than-expected 0.4 percent.

Merrill Lynch (MER, Fortune 500), which reports quarterly results Thursday, said it had received a $6.6 billion cash infusion from investors in Kuwait, Korea and Japan, among other areas of the world. Despite the investment, Merrill shares slipped. (Full story).

JP Morgan Chase (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500), Lehman Brothers (LEH, Fortune 500) and Bank of America (BAC, Fortune 500) were among the big financial companies tumbling Tuesday.

But declines were broad-based, with all 30 of the Dow components sliding.

Apple confirmed Tuesday at its Macworld conference that it will be offering movie rental downloads from all of the major studios, representing a direct threat to companies such as Netflix (NFLX) and Blockbuster (BBI, Fortune 500).

Apple also announced it will be offering a new super thin laptop computer and new software for the iPhone and iPod iTouch. Apple (AAPL, Fortune 500) shares slipped 7 percent.

eBay (EBAY, Fortune 500), Yahoo! (YHOO, Fortune 500), Intel (INTC, Fortune 500) and Cisco (CSCO, Fortune 500) were among the other big tech losers.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by three to one on volume of 1.3 billion shares. On the Nasdaq, advancers topped decliners by over three to one on volume of 1.85 billion shares.

In other economic news, the Producer Price Index (PPI), which measures inflation at the wholesale level, fell 0.1 percent, versus forecasts for a rise. Core PPI, which excludes volatile food and gas prices, rose 0.2 percent, as expected.

Overall wholesale inflation rose 6.3 percent in 2007, the government said, the worst annual increase in 26 years.

Another report, the NY Empire State index, which measures regional manufacturing, fell more than expected.

Treasury prices rallied, lowering the yield on the 10-year note to 3.70 percent from 3.77 percent late Monday as investors sought safety in government debt. Treasury prices and yields move in opposite directions.

In currency trading, the dollar slumped versus the yen and euro.

U.S. light crude oil for February delivery fell $3.21 to $90.99 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery fell 90 cents to $902.50 an ounce.