US STOCKS-Wall St falls as US backs off on buying toxic debt

* Paulson backs away from buying mortgage assets * Best Buy slashes outlook, adds to economic woes * GM, Ford shares jump on bailout hopes * Dow off 2.5 pct, S&P 500 off 2.7 pct, Nasdaq off 2.5 pct

* For up-to-the-minute market news, please click on [STXNEWS/US] (Updates to midday, changes byline)

By Leah Schnurr

NEW YORK, Nov 12 (Reuters) - U.S. stocks slid on Wednesday after the United States backed away from using the $700 billion bailout fund to buy troubled mortgage assets, adding to investors' worries about consumer spending.

Stocks extended declines following U.S. Treasury Secretary Henry Paulson's comments, which underscored the extent of the problems in the U.S. economy. For details, see [ID:nN12402414]. When Congress approved the $700 billion bailout plan last month, the purpose was to purchase toxic assets, especially mortgage-backed securities, from banks.

Paulson said the Treasury's focus now would be capital needs of non-bank financial institutions.

"Stocks are reacting adversely to it, and my view from a fundamental perspective is that it is largely because the Treasury is going to take larger equity stakes in the banking sector, which is going to dilute shareholder value," said Rudy Narvas, senior analyst at 4Cast Ltd, in New York.

Investor sentiment already was dark earlier in the session after Best Buy (BBY.N), the largest U.S. electronics chain, lowered its outlook, heightening fears about a deeper economic slump and faltering consumer spending.

Best Buy's stock slid 6 percent as the lowered outlook came on the heels of Circuit City Stores Inc (CCTYQ.PK) filing for bankruptcy protection, giving more evidence that consumer spending is falling fast.

The Dow Jones industrial average .DJI fell 213.62 points, or 2.46 percent, to 8,480.34. The Standard & Poor's 500 Index .SPX gave up 24.26 points, or 2.70 percent, at 874.69. The Nasdaq Composite Index .IXIC lost 40.20 points, or 2.54 percent, to 1,540.70.

Worries about the economy have the broader market pinned in bear market territory, with the S&P 500 down 40 percent year to date. On Oct. 10, the S&P 500 set a fresh 2008 low, hitting it's lowest level in more than five years.

Best Buy shares slid 6.1 percent to $22.43 on the New York Stock Exchange after the electronics chain rattled investors with a bleak outlook. The S&P retail index .RLX fell 2.9 percent.

In addition to consumer-oriented stocks, investors dumped technology shares, with Apple Inc (AAPL.O), sliding 2.6 percent to $92.30 on Nasdaq, marking the technology bellwether's sixth straight daily slide.

American Express (AXP.N) fell 8 percent to $20.60 after a Wall Street Journal report that the credit card issuer, now set to become a bank holding company, was seeking a cash injection from the government. American Express was among the heaviest weights on the Dow.

An unexpected bright spot came from the deeply troubled auto sector.

General Motors (GM.N) was the only advancer among the 30 Dow components amid hopes the automaker will get the financial assistance it desperately needs. GM, Ford (F.N) and Chrysler LLC are seeking $25 billion in urgent federal assistance as their cash burn rates rise.