Stocks slide on economic worries

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NEW YORK (CNNMoney.com) -- Stocks dipped Friday morning after surprisingly weak surveys on manufacturing and consumer sentiment revived worries about the threat of a recession.

A profit warning from Best Buy kept the risks for a consumer spending recession in focus as well.

The Dow Jones industrial average (INDU), the broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all declined two hours into the session.

Stocks slumped Thursday as investors reacted to Federal Reserve Chairman Ben Bernanke's Congressional testimony that economic conditions are likely to get worse before they get better.

That outlook was demonstrated Friday by the NY Empire State index, a regional manufacturing report that showed a surprise reading of -11.7 versus forecasts for a positive reading of 7. Any negative reading suggests contraction in the sector.

Another report, the University of Michigan's February consumer sentiment index, showed a bigger-than-forecast dip to 69.6 from 78.4 in the previous month. Economists thought it would fall to 76.5.

A third report showed a slight tick up in industrial production and flat capacity utilization in January.

Bernanke and Greenspan on recession risks. On Thursday, Bernanke told the Senate Banking Committee that the outlook for the economy has worsened recently and that the risks to growth remain to the downside.

However, Bernanke said that the economy should avoid a recession thanks to the fiscal and monetary policy that is in place. That includes the government's $170 billion fiscal stimulus plan and the series of interest-rate cuts and loans to commercial banks the Fed has instituted over the last 5 months.

On Friday, former Fed chief Alan Greenspan said there's at least a 50% chance the economy will fall into a recession.

Bernanke also discussed the risk the bond insurers pose to the already strapped financial sector, amid the credit crisis. On Friday, FGIC said it wants to split its healthy healthy municipal bond insurance arm from its troubled structured finance arm. (Full story).

Company news. Best Buy (BBY, Fortune 500) warned that 2008 earnings won't meet forecasts. Shares fell 4% in active New York Stock Exchange trade.

Late Thursday, data networking provider Brocade Communications (BRCD) posted quarterly earnings that fell from a year ago but nonetheless topped forecasts.

Warren Buffett's Berkshire Hathaway said in a regulatory filing released late Thursday that it has boosted its Kraft (KFT) and GlaxoSmithKline (GSK) holdings. Both stocks jumped Friday.

Arris Group (ARRS) plunged 28% in unusually active Nasdaq trade after the cable phone and television services provider reported a steep drop in quarterly profit and warned that current-quarter results won't meet forecasts.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers three to one on volume of 600 million shares. On the Nasdaq, losers beat winners two to one on volume of 770 million shares.

Other markets. Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.77% from 3.80% late Thursday. Bond prices and yields move in opposite directions.

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

U.S. light crude oil for March delivery rose 84 cents to $96.30 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery rose $5.20 to $916 an ounce.