Wall St closes out worst year since Depression

By Chuck Mikolajczak and Chris Sanders

NEW YORK (Reuters) - Wall Street closed out its worst year since the Great Depression on Wednesday after an unstoppable credit crisis and a dreadful economic outlook left investors questioning their faith in stock markets.

A string of financial disasters culminating in the collapse of Lehman Brothers in the middle of the night in September precipitated the third biggest percentage loss ever for the Dow industrials and the broad S&P 500.

By November 20, the S&P had hit an 11-year low, destroying more than a decade of returns for many Americans and wiping out memories of record highs reached just 13 months earlier.

"It was plain ugly out there," said Kurt Brunner, a portfolio manager with Swarthmore Group in Philadelphia.

"All in all, it's something that I truly hope is once-in-a lifetime thing."

Nonetheless, U.S. stocks managed to close the year on an up note on Wednesday as fresh efforts to stem the recession from Washington lifted equities for the second consecutive session.

For the year, the Dow fell 33.8 percent, for its bleakest year since 1931; the S&P skidded 38.5 percent; and the Nasdaq posted its worst year ever, with a 40.5 percent drop.

When all was said and done, the S&P 500 found itself $5.02 trillion lighter than it was last year.

The bursting of the housing bubble began a long chain of events culminating in the worst credit crisis in a generation.

A deep mistrust grew between banks while growing doubts among investors about the American banking model crippled financial stocks and yanked a key pillar supporting U.S. equity markets.

As the shortage of credit seeped into the broader economy, unemployment rose and consumer spending dived.

Only two stocks in the Dow ended higher for the year: Wal-Mart Stores and McDonald's Inc. Investors bet discounters like Wal-Mart and inexpensive fast-food restaurants would be the few places consumers spend scarce cash as unemployment soared and the economy crumbled.

The biggest decliner on the Dow was General Motors, which fell 87.1 percent for the year as the company was compelled, along with other automakers, to plead for funds from Washington in an attempt to avoid bankruptcy.

On the S&P, the biggest decliner for the year was insurer American International Group, which fell 97.3 percent after agreeing to an $85 billion bailout from the Federal Reserve in exchange for government control.

But the market rose on Wednesday as investors bet that fresh initiatives from Washington will help stave off a deep recession.