US STOCKS-Economic, credit fears punish Wall St
* Credit market strains persist worldwide
* Weekly U.S. jobless claims hit 7 year-high
* August factory orders tumble
* House still must vote on bailout passed by Senate
* Dow down 3.2 pct, S&P down 4 pct, Nasdaq down 4.5 pct
(Updates with Nasdaq closing at three-and-a-half-year low)
NEW YORK, Oct 2 (Reuters) - U.S. stocks slid on Thursday as tight credit markets and bleak economic data forced investors to focus on the rocky road still ahead for the U.S. economy even if Congress passes a $700 billion rescue package this week.
The Dow shed more than 3 percent while the S&P 500 and Nasdaq dropped 4 percent as Wall Street worried the economy may slide into recession, further cutting into corporate profits.
Data showing the number of people filing for unemployment benefits hit a seven-year high painted a troubling picture, as did a report showing a steep drop in factory orders in August.
"It's almost a perfect storm and it's starting to hit home," said Alan Lancz, president of Alan B. Lancz & Associates Inc, in Toledo, Ohio, adding that the weak data showed the extent of the damage from stagnating credit markets.
That added to anxiety about the fate of the government's rescue plan, which the Senate passed on Wednesday after the House rejected it in its original form. A second House vote was expected on Friday.
The price of oil plummeted more than 4 percent as financial market turmoil stoked concerns about demand for fuel and precious metals slid as the dollar rose.
"There's a big fear that the bill is not going to pass, which is weighing on the markets, and at the same time, we are watching commodities totally fall apart," said Angel Mata managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.
The Dow Jones industrial average .DJI fell 348.22 points, or 3.22 percent, to 10,482.85, while the Standard & Poor's 500 Index .SPX slid 46.78 points, or 4.03 percent, to 1,114.28. The Nasdaq Composite Index .IXIC dropped 92.68 points, or 4.48 percent, to 1,976.72 -- a three-and-a-half-year low.
Since the beginning of the year, the Dow has lost 21 percent, while the S&P 500 has dropped 24 percent and the Nasdaq has fallen 25 percent.
Insurance stocks, led by Hartford Financial (HIG.N), Principal Financial (PFG.N) and MetLife (MET.N), fell after Senate Majority Leader Harry Reid raised the question of whether a well-known insurer could be in financial trouble. Hartford shares plummeted 32 percent to $25.91, Metlife slid 14.9 percent to $40.96 and Principal Financial shed 16.3 percent to $31.52.
Investors punished shares of technology companies such as Intel Corp (INTC.O), off 7.1 percent at $17.20, and economic bellwethers such as heavy-equipment maker Caterpillar Inc (CAT.N), whose stock tumbled 8.3 percent to $52.22. Diversified manufacturers struggled after Barclays cut its outlook for the sector. [ID:nWNAS2835]
General Electric (GE.N) slid 9.6 percent to $22.15 after the company, seeking to raise cash, said it priced a share offering below the stock's closing price on Wednesday.
IBM (IBM.N) shares fell 4.9 percent to $104.74 on the New York Stock Exchange, while on Nasdaq, shares of eBay Inc (EBAY.O) tumbled 8.2 percent to $19.15 after Morgan Stanley cut its price target on the stock of the Internet auctioneer and retailer.
Commodity-related companies' shares also weakened as commodity prices fell, with miner Freeport McMoRan Copper & Gold Inc (FCX.N) down 13.9 percent at $45.60, after Goldman Sachs removed the stock from its "buy" list.
The Senate passed a revised version of the financial rescue plan two days after the House rejected an initial plan that triggered the biggest slide in U.S. stocks in 21 years.
Still, credit market constraints persisted on Thursday. The commercial paper market -- short-term loans -- contracted for the third straight week, as business lending and borrowing effectively shut down.
In the latest sign of faltering consumer and business spending, hotel operator Marriott International Inc (MAR.N) warned that 2009 would be tough, sending its shares down 5.3 percent to $23.74 on the NYSE.
Trading was moderate on the New York Stock Exchange, with about 1.51 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.22 billion shares traded, slightly above last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones by about 5 to 1 on both the NYSE and on Nasdaq. (Additional reporting by Steven C.Johnson and Ellis Mnyandu; Editing by Jan Paschal)
