Weak retail sales and Citigroup plague Wall St.

By Kristina Cooke

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: Quote, Profile, Research, Stock Buzz), 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: Quote, Profile, Research, Stock Buzz) 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: Quote, Profile, Research, Stock Buzz) 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.