Wall St tumbles after S&P threatens GE, oil falls

NEW YORK (Reuters) - Stocks fell for the second day on Thursday after Standard & Poor's threatened to strip General Electric of its 'AAA' credit rating and slumping oil prices crippled energy shares.

General Electric (GE.N) shares tumbled 8.2 percent to $15.96 and ranked among the top drags on the Dow industrials after S&P said there is at least a 1-in-3 chance that it will cut the company's credit rating from the top "AAA" tier in the next two years.

"It's certainly not good news for GE and their ability to borrow," said Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds in San Francisco. "It just supports the broad-based economic decline."

Chevron Corp (CVX.N) and Exxon Mobil (XOM.N) were the biggest drags on the Dow for the second consecutive session as oil fell almost $4, or about 10 percent, to settle near $36 a barrel on growing fears of falling demand.

The Dow Jones industrial average .DJI tumbled 219.35 points, or 2.49 percent, to end at 8,604.99. The Standard & Poor's 500 Index .SPX dropped 19.14 points, or 2.12 percent, to 885.28. The Nasdaq Composite Index .IXIC fell 26.94 points, or 1.71 percent, to 1,552.37.

The Nasdaq showed the ill effects of a downgrade by brokerage Jefferies & Co of Intel Corp (INTC.O) and other semiconductor stocks. [ID:nBNG374800] The Philadelphia Semiconductor Index .SOXX tumbled 5.5 percent.

ORACLE JUMPS LATE

After the close, business software maker Oracle (ORCL.O) and BlackBerry maker Research in Motion (RIM.TO)(RIMM.O) reported quarterly earnings, which could help lift the Nasdaq in Friday's trading.

Shares of Oracle shot up 2.6 percent to $17.05 in extended trade, while Research in Motion's U.S.-listed stock was down slightly.

The broad S&P 500 gave up just under half of the big gain it racked up following the Federal Reserve's surprisingly aggressive interest-rate cut on Tuesday.

The two days of declines put a damper on the market's attempt to establish a sustainable rally off the recent lows, but it remains up about 19 percent from its then 11-year intraday low that it hit on November 21. The S&P 500 remains down about 40 percent for the year so far.

Investors continue to assess the benefit of the Fed's record rate cut on Tuesday and a proposed stimulus package from President-elect Barack Obama.

An S&P index of energy stocks .GSPE lost 5.7 percent. Chevron was down 4.9 percent at $73.03, while Exxon Mobil was down 5 percent at $77, both on the New York Stock Exchange.

Oil prices tumbled despite OPEC's approval of a record output cut on Wednesday. U.S. crude for January delivery fell $3.84 to settle at $36.22 a barrel.

WHEN THE CHIPS ARE DOWN

The slowdown in the personal computer market, with declining sales of desktops and slowing sales of laptops, factored into Jefferies' downgrade of Intel's shares to "underperform" from "buy." The brokerage also slashed its price target on Intel to $11 from $26.

Intel's stock lost 6.6 percent to $14.26 and ranked as the heaviest weight on the Nasdaq 100 .NDX.

Jefferies also downgraded Intel's smaller rival Advanced Micro Devices (AMD.N) to "underperform" from "hold," along with a cut in its ratings of seven other semiconductor stocks. Shares of Advanced Micro fell 2.6 percent to $2.23 on the NYSE.

Wireless chip maker Qualcomm (QCOM.O) lost 2.8 percent to $34.12. It was the second-heaviest weight on the Nasdaq 100.

POOR VISIBILITY FOR FEDEX

Investor sentiment also was clouded by cautious corporate outlooks from a range of companies, including FedEx Corp (FDX.N) and Ingersoll-Rand (IR.N).

FedEx, considered an indicator of economic health, was down 2.1 percent at $62.60 on the NYSE after the package delivery company reported a rise in quarterly profit. However, the company said it would not provide an outlook for the third quarter of 2009 because of "significant economic uncertainty.

Ingersoll-Rand shares dropped 4.7 percent to $15.59 after the diversified manufacturer cut its fourth-quarter and full-year 2009 revenue and earnings estimates, citing weakness in Europe.

Shares of ailing automaker General Motors GM.N dropped 16.3 percent to $3.66.

The White House said it was nearing a conclusion on the bailout package that Detroit's Big Three automakers are seeking, even considering an "orderly" bankruptcy, as they struggle to cope with slumping demand and weakening consumer spending.

Earlier in the session, economic data on the labor market came in roughly in line with expectations, along with a survey from the Federal Reserve Bank of Philadelphia that showed factory activity in the U.S. Mid-Atlantic region contracted in December, but at a less severe rate than in the previous month.

Volume was low on the New York Stock Exchange, with about 1.42 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.11 billion shares traded, below last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 2. On the Nasdaq, nine stocks fell for every five that rose.

(Additional reporting by Leah Schnurr and Deepa Seetharaman; Editing by Jan Paschal)