US STOCKS-Wall St falls on credit, economy worries

(Updates to midafternoon)

By Kristina Cooke

NEW YORK, Aug 16 (Reuters) - U.S. stocks fell on Thursday on signs credit markets were seizing up, threatening economic growth.

An early blow to investor confidence came from Countrywide Financial Corp. CFC.N. The biggest U.S. mortgage lender said it had to draw down an entire $11.5 billion bank credit line after it was essentially shut out of other credit markets. For details, see [ID:nN16321010].

All three major indexes fell more than 10 percent below their 52-week highs from mid-July, a level recognized as a market correction by professional investors, as opposed to a signal that a bull market has ended. Bear markets are defined by a 20 percent drop in prices from their highs.

"We've got full-scale fear and panic," said David Bianco, chief U.S. equity strategist at UBS in New York.

"People are beginning to lean toward outlooks now of all the dominoes falling, that the U.S. economy slides into recession because of this credit crunch, and it has an adverse impact on the global economy and even the globally exposed sectors."

The Dow Jones industrial average .DJI was down 185.67 points, or 1.44 percent, at 12,675.80. The Standard & Poor's 500 Index .SPX was down 16.13 points, or 1.15 percent, at 1,390.57. The Nasdaq Composite Index .IXIC was down 38.35 points, or 1.56 percent, at 2,420.48.

A much weaker-than-expected reading in a gauge of economic activity in the Mid-Atlantic region added to already frayed nerves, sending stocks sliding further and triggering downside trading curbs on the New York Stock Exchange.