Wall St tumbles on credit worries after Bear talks

By Kristina Cooke

NEW YORK (Reuters) - Stocks slid sharply on Friday after Bear Stearns said credit markets were in their worst shape in two decades, while jobs data aroused further concerns about weakness in the economy.

Bear Stearns Cos. stock fell 6 percent after the comments from its chief financial officer, which exacerbated mortgage jitters and drove the three major indexes down more than 2 percent in a broad market sell-off.

Earlier, Standard & Poor's lowered its outlook on Bear Stearns' debt to "negative," saying the biggest U.S. underwriter of mortgage bonds may have problems, including with its hedge funds, that could hurt the firm "for an extended period."

"It's particularly ugly right now," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

"The Bear Stearns comments are what really pushed the market over the edge."

The Dow Jones industrial average tumbled 281.42 points, or 2.09 percent, to 13,181.91, with every one of its 30 components ending the day in the red.

The S&P 500 and the Nasdaq had their worst one-day percentage drops since the February 27 global equity rout.

The Standard & Poor's 500 Index dropped 39.14 points, or 2.66 percent, to 1,433.06. The Nasdaq Composite Index sank 64.73 points, or 2.51 percent, to 2,511.25.

The sharp declines prompted the New York Stock Exchange to institute downside trading curbs at 3:29 p.m. (1929 GMT).

The day's sell-off ended a week of wild market swings, pushing all indexes firmly down into negative territory for the week -- the Dow fell 0.7 percent, while the S&P 500 shed 1.8 percent and the Nasdaq lost 2 percent.

U.S. crude oil futures ended more than a dollar lower, sparking worries in energy markets that petroleum demand might drop as the economy slows. On the New York Mercantile Exchange, September crude fell $1.38, or 1.8 percent, to settle at $75.48 a barrel.

U.S. government bond prices climbed, as falling stocks sent jittery investors scrambling for the safety of Treasury debt, bond traders and fund managers said. The 10-year U.S. Treasury note jumped 23/32 in price to 98-19/32, while its yield fell to 4.68 percent from 4.77 percent late on Thursday.

The CBOE Volatility Index, or VIX, which is known as Wall Street's fear gauge, jumped 18.6 percent to end at 25.16. It was the seventh trading session that the VIX rose above 20.

ECONOMIC TROUBLE?

Wall Street has been dogged by concerns that deteriorating lending conditions could hurt the economy and a rash of disappointing economic data, including weaker-than-expected jobs growth and slower service sector growth, added to already frayed nerves.