Retail sales, Goldman hit Wall Street; Intel drops late

By Ellis Mnyandu

NEW YORK (Reuters) - Stocks fell on Tuesday as a surprising drop in retail sales dented hopes the recession was abating and financial shares slid on fears that Goldman Sachs' (GS.N) share offering could prompt others to follow suit.

Retail sales in March snapped two months of increases and sparked selling across the board, with the stocks of retailers, big manufacturers, technology and energy companies among the casualties. The S&P retail index .RLX fell 2.5 percent.

But the financial sector, which had recently led the stock market's 5-week rebound from 12-year lows, took the biggest beating by far, with the KBW Bank index .BKX falling 8.1 percent and the S&P financial index .GSPF dropping 7.7 percent.

"There is fear that other banks wanting to pay back government funds may want to raise cash by issuing shares," said Ryan Detrick, senior technical strategist at Ohio-based Schaeffer's Investment Research.

The gloomy news on retail shows that "maybe the economy hasn't turned around as the last 5-week bounce suggested."

The Dow Jones industrial average .DJI dropped 137.63 points, or 1.71 percent, to 7,920.18. The Standard & Poor's 500 Index .SPX fell 17.23 points, or 2.01 percent, to 841.50. The Nasdaq Composite Index .IXIC declined 27.59 points, or 1.67 percent, to 1,625.72.

INTEL DROPS LATE, BUT eBAY JUMPS

After the bell, shares of Intel Corp (INTC.O) shed 4.6 percent to $15.28 after the chip maker and a Dow component gave no formal second-quarter revenue forecast even as it posted stronger-than-expected first-quarter results.

In regular trade, Intel ended up 0.2 percent at $16.01 on Nasdaq.

In other technology news, eBay Inc (EBAY.O) said after the bell it would spin off its fast-growing Skype unit, a Web telephone service company, through an initial public offering, ending speculation about an imminent sale.

Shares of eBay, the online auctioneer, rose more than 5 percent to $15.14 after hours. They had ended the regular session down 1.7 percent at $14.38 on Nasdaq.

WEAK SALES WHIP CONSUMER STOCKS

During the regular session, consumer-oriented stocks felt the sting of the morning's unexpectedly weak retail sales data. The stock of department store operator Macy's (M.N) tumbled 7.3 percent to $11.99, while shares of Wal-Mart Stores (WMT.N) , the world's biggest retailer, fell nearly 1 percent to $51.12, and consumer goods maker Procter & Gamble (PG.N) declined 1.6 percent to $47.25.

Shares of fast-food company McDonald's Corp (MCD.N) declined 2.3 percent to $54.82, making the stock one of the top drags on the Dow industrials.

Consumer spending accounts for about two-thirds of U.S. economic activity and is a pillar of corporate profits.