Wall Street: Thursday close

BEARS prowled Wall Street again as new figures fuelled fears that the economy may be heading back into hibernation. The Dow Jones Industrial Average, after surging roughly 1200 points in a week-long bull run, slumped 229.97 points or 2.6% to 8506.62, while the Nasdaq slid 42.26 points or 3.6% to 1280.00.

Behind the latest selling was more evidence that the economy is losing momentum amid caution triggered in part by corporate accounting scandals.

Economists said executives appeared to be holding back on spending in fear that any red flags on spending or earnings would send their shares plummeting. 'The watchword is caution all round,' said one analyst. 'Caution in buying stocks and caution in buying new equipment and even caution in hiring.'

The delicate nature of the economy was highlighted by the Institute of Supply Management, which said its manufacturing activity index dropped to 50.5 in July, down from 56.2 in June and a full 10% below economists' expectations. Washington reported a 2.2% dip in construction spending against expectations of a slight increase.

The data supported the picture painted by second quarter gross domestic product figures on Wednesday that the economy, after driving out of recession in the first quarter, is stalling and is in danger of going into reverse.

Another snapshot of the economy will come today, Friday, from the key unemployment report, which will show the level at which employers were hiring during July.

The selling was broad with companies exposed to the economy globally hit, apparently on fears that if the US is sneezing then the rest of the world will catch a cold. Oil group Exxon Mobil plunged $3.11 or 8.5% to $33.65 after it missed its quarterly forecasts. Rival Royal Dutch Shell fell $3.49 or 7.6% to $42.21 after it too disappointed investors with second-quarter figures.

Wal-Mart, the world's biggest retailer, shed $1.78 or 3.6% to $47.40 on signs that the consumer, a stalwart during the recent downturn, was buckling. General Motors reversed 71 cents or 1.5% to $45.84. American Express was marked down 90 cents or 2.6% to $34.36 on negative broker comments.

Walt Disney fell 90 cents or 5% to $16.83 and then tumbled another 9% in extended hours trading after warning that its results would fall below expectations in the fourth quarter. A weaker economy and cutbacks by consumers in domestic and international travel fed into the revision, the company said.

Techs were hit. Graphics software maker Adobe Systems plummeted $7.13 or 30% to $16.83 after its quarterly numbers fell below expectations. Microsoft crumpled $2.23 or 4.7% to $45.75. Intel fell $1.23 or 6.6% to $17.56. Hewlett-Packard retreated 46 cents or 3% to $13.69. But online retailer Priceline.com gained 15 cents or 8% to $2 after it topped quarterly targets.

Among Dow comonents, Citigroup dipped $1.06 or 3.2% to $32.30 and heavy equipment maker Caterpillar eased $1.44 or 3.2% to $43.26.