Weak retail sales and Citigroup plague Wall St.

Traders work on the floor of the New York Stock Exchange in New York December 12, 2007.

NEW YORK (Reuters) - All three major U.S. stock indexes plunged more than 2 percent on Tuesday after a record loss at Citigroup Inc and the worst showing for retailers in five years fueled fears that the economy was heading into a recession.

Citigroup (C.N), the largest U.S. bank, slashed its dividend after writing down $18.1 billion for losses tied to subprime home loans and other risky debt, sending its shares down 7 percent. That added to concerns the global credit crisis is far from over.

The picture for stocks grew grimmer after the government said retail sales unexpectedly fell in December to close out the weakest year since 2002. Costlier energy and falling home prices depressed spending during the holiday shopping season, a key concern because consumer spending accounts for more than two-thirds of U.S. economic activity.

Adding to the market's decline, shares of plane maker Boeing Co (BA.N) fell 4.7 percent after The Wall Street Journal reported the company may delay its 787 program again.

Investors were also unimpressed by new offerings from Apple (AAPL.O) unveiled at the annual Macworld convention in San Francisco. Apple's shares slid 5.4 percent.

"It's a perfect storm of negativity today," said Michael James, a senior trader at Wedbush Morgan in Los Angeles. He pointed to the combination of dismal results from Citigroup, the poor retail sales figures, Boeing news and the lack of a "wow" factor from Apple.

The Dow Jones industrial average .DJI fell 277.04 points, or 2.17 percent, to close at 12,501.11, to its worst level since April. All 30 Dow components ended the day in the red.

The Standard & Poor's 500 Index .SPX ended down 35.30 points, or 2.49 percent, at 1,380.95. The Nasdaq Composite Index .IXIC dropped 60.71 points, or 2.45 percent, to close at 2,417.59.

The torrent of bad news did not let up after the closing bell. Chipmaker Intel Corp's (INTC.O) shares plummeted 13.8 percent to $19.55 in extended trade, after its revenue missed Wall Street estimates.

"Intel touches so many names and it's also global, so it should have an impact on the market to the down side," on Wednesday, said Bennett Gaeger, managing director at Stifel Nicolaus in Baltimore.

CASH INFUSIONS

During the regular session, Citigroup shares slid 7.3 percent to $26.94. In order to help shore up its balance sheet, Citigroup said it plans to raise $14.5 billion from outside investors and cut 4,200 jobs.

Shares of Merrill Lynch & Co MER.N, the world's largest brokerage, which also announced a plan on Tuesday to raise capital, were down 5.3 percent at $53.01. Shares of Bank of America Corp (BAC.N), the No. 2 U.S. bank, fell 3.4 percent to $37.88.

Apple Inc (AAPL.O) fell 5.4 percent to $169.04, and was the biggest drag on the Nasdaq. Boeing shares ended down 4.7 percent at $77.86, its worst closing percentage decline since June 2003 and were the top drag on the Dow.

The latest retailer with disappointing news was home goods store Williams-Sonoma, which cut its outlook on Tuesday after a weak holiday sales season. Williams-Sonoma (WSM.N) shares slid 9.9 percent at $20.01.

Retail sales figures are considered a key benchmark because consumer spending accounts for more than two-thirds of U.S. economic activity.

Energy stocks also pushed down the market after U.S. crude oil futures CLc1> fell 2.2 percent on fears a recession would dent demand. Oil field services company Schlumberger Ltd's (SLB.N) shares lost 6.9 percent to $88.93 and Valero Energy (VLO.N) fell 8.3 percent to $54.90. Exxon Mobil (XOM.N) led both the S&P and the Dow lower, dropping 2 percent to $89.02.

Trading was moderate on the New York Stock Exchange, with about 1.8 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.38 billion shares traded, ahead of last year's daily average of 2.17 billion.

Declining stocks were outnumbering advancing ones by a ratio of about 3 to 1 on the NYSE and on Nasdaq.

(Editing by Leslie Adler)