INSTANT VIEW: S&P now latest global benchmark in bear market

NEW YORK (Reuters) - The Standard & Poor's 500 index .SPX, the most widely tracked U.S. equity benchmark, dropped into a confirmed bear market on Wednesday on worry about deeper credit losses across the financial sector and a weakening economic outlook.

KEY POINTS: * The S&P 500 is now 20.5 percent below its record high close of 1,565.15, set October 9, 2007. Bear markets are typically defined by an index drop of 20 percent or more from a peak level. * The index is the last of the three major U.S. benchmarks to confirm its bear market status. The Dow Jones industrial average .DJI crossed the bear threshold on July 2, and the Nasdaq composite index .IXIC did so on February 6. * Financial stocks once again proved the catalyst for the downdraft that carried the S&P into bear territory. The S&P financials index .GSPF is off 33 percent year to date and nearly 50 percent from its 2007 record high. * The S&P financials index fell 5.2 percent on the day, the biggest one-day percentage drop in six years. Wednesday's fall was led by mortgage funding providers Fannie Mae (FNM.N) and Freddie Mac (FRE.N), on renewed anxiety about the potential need for a massive capital infusion. * Stubbornly high oil prices are also cited widely as a factor by market participants. While crude has fallen more than $9 a barrel this week, the oil price remains above $135 a barrel and has driven retail gasoline prices to records this year. That is pushing up fears of quickening inflation and slowing consumer spending. * After financials, the next worst performing sector in the decline has been consumer discretionaries, where General Motors GM.N has led the charge lower, dropping 58.5 percent year to date.

COMMENTS:

SUNG WON SOHN, MARTIN V. SMITH PROFESSOR OF ECONOMICS AT CALIFORNIA STATE UNIVERSITY, CAMARILLO, CALIFORNIA:

"I think we are going to have to grin and bear it for a while because the market is getting worse, not better. I think the primary culprit at the moment is the high price of oil which amounts to a massive tax on the economy including you and me. So with the heavy tax burden on our shoulders the economy cannot operate very well."

"I think we will see at least one quarter of economic contraction of real gross domestic product in the second half of this year. We are in for some more pain in the coming months."

"What the financials have to do is go through a process of deleveraging. Leveraging during good times was easy. Deleveraging during tough times is very tough. We are seeing many financial firms not able to raise capital and not able to sell assets they have acquired. I suspect we will see more and more commercial banks getting in trouble as well."

JORDAN KOTICK, GLOBAL HEAD OF TECHNICAL ANALYSIS, BARCLAYS CAPITAL, NEW YORK:

"It's significant (the S&P falling into a bear market). It is not just the S&P. It's global and that's the danger."

CLEVELAND RUECKERT, RESEARCH ANALYST AT BIRINYI ASSOCIATES INC, WESPORT, CONNECTICUT:

"This is the ninth bear market on the S&P. They lasted 370 days on average, or about one year, and the average decline is 31.2 percent. So, using that methodology, based on the average, you still have a little more of a decline ahead, but the worst is probably past.:

STEVE WEEPLE, HEAD OF U.S. EQUITIES, STANDARD LIFE INVESTMENTS, BOSTON:

"Although we only breached the definition of a bear market today, if you speak to market participants, everyone has felt we have been in a bear market for a number of months.

"Investors ... don't believe any of the little sentimental rallies.

"We still think there is value in stocks that are more geared to global demand holding up than U.S. demand.

"And we still think there is still a growth story in parts of Asia that will support materials and commodities to an extent that is not being priced into the market right now."

RUDY NARVAS, SENIOR ANALYST, 4CAST LTD, NEW YORK:

"On a fundamental basis, if we start looking back, the market had not really priced in an economic slowdown. If we look at P/E ratios a few months back they had been suggesting that the market was a little bit overpriced from our perspective given our outlook for rather sluggish growth this year. It would only take time for that to sink into the stock market, but in terms of falling this far we were not expecting that. At the same time though maybe it should not be surprising given that we are seeing consumers having a difficult time.

The big thing here is the financial sector, it is really getting hit hard and who knows when it is going to end. We are seeing numbers being thrown around out there that writedowns could be over $1 trillion. There is concern out there that financials are toxic.

On a fundamental basis there is probably not much more room for bonds to gain on this. We have to go with the risk-aversion trade in the short run -- money has to go somewhere, investors can't just sit on the sidelines and so they turn to things like U.S. Treasuries. But at the same time you have to be cautious because the Fed is not likely to cut rates any further."

HUGH JOHNSON, CHIEF INVESTMENT OFFICER AT JOHNSON ILLINGTON ADVISORS, ALBANY, NEW YORK:

"The trend in the market is down based on historical averages. History, going back to 1890, tells us that bear markets decline 25 percent on average and last 16 and a half months on average."

"If this one is going to be average, then it has further to go over a longer period of time."

"Until we can make the case for a turn in the economy and earnings, we won't be able to make a case for the end of the bear market."

"The price of oil at current levels is the number one variable that has to get better."

"Investors, especially those who cannot sleep at night should reduce their exposure to stocks and increase their exposure to bonds, and wait for the storm to pass."

CARL LANTZ, U.S. INTEREST RATE STRATEGIST AT CREDIT SUISSE, NEW YORK:

"The S&P 500 financials index is down 5.2 percent today. That's the biggest move since July 2002, the biggest one-day move. I was pretty surprised when I saw that. We've had a lot of bad days but not that bad.

"It's just impressive that today was worse than any of those days last August or this March, and everything is from a much lower base at this point. So, it's getting a little scary."

ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, RBS GREENWICH CAPITAL, GREENWICH, CONNECTICUT:

"This decline in equities has just hastened a double dip type scenario where you get a brief fiscal stimulus but then the economy weakens again. That's not terribly dollar positive, as it suggests the Fed's on hold. But the yen is weighed down by lack of yield and the pound is risky because UK data is falling off a cliff. It's really a world where it's hard to distinguish between a bunch of ugly ducklings. For now, the euro stands up rather well.

"With stocks, if one thing could turn it around, it would be oil, which has been the big problem. The global economy is dealing with the largest oil shock in 25 years and the largest credit shock since the 1930s. I think there's some hope that oil prices could self-correct because the run up has extracted so much pain on the demand side that you see less demand for oil."

CARL KAUFMAN, PORTFOLIO MANAGER, OSTERWEIS CAPITAL MANAGEMENT, SAN FRANCISCO:

"The financial system is far from being fixed and you have this commodity price spike at the same time. You don't have the wage expansion. All this doesn't conspire to a large swathe of the economy and it's going to be soft for awhile."

"You have a stock market coming off very high multiples, and now you have an inflationary patch, like the 1970s. The trend for stocks is going to be lower."

"If it's just a recession, it would be a boon for Treasuries. But you have inflation and weak dollar which throw cold water on that. So basically we are not going to go anyway with rates in the short term. But eventually the Fed is going to have to raise rates."