Stocks slump on recession fears

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NEW YORK (CNNMoney.com) -- Stocks tumbled Thursday morning as investors mulled a weak reading on economic growth and the second day of Fed Chairman Ben Bernanke's Congressional testimony.

The Dow Jones industrial average (INDU) lost 1.1% almost 2-1/2 hours into the session, while the broader Standard & Poor's 500 (SPX) index fell 1%. The Nasdaq composite (COMP) declined 1.1%.

A revised reading of gross domestic product, the broadest measure of the nation's economic activity, showed fourth-quarter growth remained at the same tepid 0.6% rate initially reported. Economists surveyed by Briefing.com thought growth would be revised up to 0.8% in the quarter.

Separately, the number of Americans filing new claims for unemployment rose unexpectedly to 373,000 last week from a revised 354,000 in the previous week. Economists expected 350,000 new claims.

The two reports added to worries that the economy is in a recession, or heading toward one.

Bernanke on the Hill. In day two of his Congressional testimony, Fed Chairman Ben Bernanke maintained that the economy can avoid a recession, but acknowledged that the consumer is getting hit harder than in the last big slowdown in 2001, AP reported.

Recent reports have showed rising consumer prices and oil and gold prices are near all-time highs.

Bernanke was speaking to the Senate Banking Committee, following Wednesday's appearance before House legislators.

On both days, the Fed chief indicated that the central bank is likely to keep cutting interest rates due to the slowing economy, although the rise in inflation makes it a more challenging environment.

Investors have been worrying of late that the combination of sluggish growth and rising inflation will leave the economy in a dreaded environment of "stagflation," seen in the 1970s. Bernanke said that is not an environment that he anticipates and that the economy is nowhere near such a state, AP reported.

Separately, President Bush talked about why he opposes the recent foreclosure prevention legislation that Senate Democrats have introduced.

Earnings news. Sprint Nextel (S, Fortune 500) reported a fourth-quarter loss versus a profit a year ago and said it lost 100,000 subscribers in the quarter. The wireless provider also predicted it would lose 1.2 million subscriptions in the first quarter, more than what analysts were expecting. Shares fell about 8%.

Sears Holdings (SHLD, Fortune 500) reported lower quarterly profit, but earnings managed to top analysts' estimates. Revenue fell short of forecasts. Shares were little changed, erasing early losses.

Mortgage lender Freddie Mac (FRE, Fortune 500) reported a steeper-than-expected $2.5 billion fourth-quarter loss, due to the ongoing fallout from the housing market collapse. On Wednesday, Fannie Mae (FNM) posted a $3.6 billion quarterly loss.

A variety of financial stocks slumped as well, including the Dow's five financial components: AIG (AIG, Fortune 500), American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and JP Morgan (JPM, Fortune 500).

Other markets. U.S. light crude oil for April delivery rose $1.96 to $101.60 a barrel on the New York Mercantile Exchange, not far from all-time trading highs above $102 a barrel hit on Wednesday.

COMEX gold for April delivery rose $6.70 to $967.70 an ounce after hitting a fresh all-time trading high of $969 an ounce earlier in the session.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.72% from 3.84% late Wednesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar touched a fresh all-time low versus the euro and also declined against the yen.