Nov. 11 (Bloomberg) -- U.S. stocks dropped for a second day as a deteriorating outlook for American industry and oil's drop below $59 a barrel signaled the economic slump may deepen.

General Motors Corp. tumbled to the lowest price since 1943 as the automaker crept closer to bankruptcy, while Tyco International Ltd., the world's largest maker of security systems, sank 14 percent on a profit forecast that trailed analysts' estimates. Hartford Financial Services Group Inc. slid 23 percent after Goldman Sachs Group Inc. said investment losses may force insurers to raise more capital and threaten credit ratings. All 40 energy shares in the Standard & Poor's 500 Index decreased as crude declined to a 19-month low.

The S&P 500 fell 20.26 points, or 2.2 percent, to 898.95. The Dow Jones Industrial Average lost 176.58, or 2 percent, to 8,693.96 as 29 of its 30 companies retreated. The Nasdaq Composite Index slid 2.2 percent to 1,580.9. Five stocks declined for each that rose on the New York Stock Exchange.

``We're going to see a lot of corporate grief,'' Harvey Pitt, former chairman of the Securities and Exchange Commission and chief executive officer of Kalorama Partners, said in an interview on Bloomberg Radio. ``We'll see companies laying off a lot of people and the market reflecting a lack of confidence in a lot of companies' values.''

Financials and raw material producers led the S&P 500 to a 39 percent plunge this year as profits for the world's biggest banks slumped and commodities tumbled. Credit Suisse AG lowered its mid-2009 target for the S&P 500 to 1,050 from 1,200 today and said the world's developed economies are headed for the worst recession since 1945.

About 1.2 billion shares changed hands on the floor of the NYSE, 16 percent less than the three-month daily average.

Global Retreat

Europe's Dow Jones Stoxx 600 Index lost 4 percent and the MSCI Asia Pacific Index declined 3.6 percent. The MSCI Emerging Markets Index of fell 4.7 percent. The Russell 2000 Index of small U.S. companies slipped 2.2 percent, paced by declines in shares of solar cell producer Energy Conversion Devices Inc.

Yesterday's revised bailout of American International Group Inc. marked the first time cash from the rescue fund Congress created last month has been committed to a failing company. Banks around the world lost more than $900 billion since the middle of last year as forecloses reached record highs and complex, illiquid securities backed by mortgage loans plunged in value.

GM dropped for a fifth straight day, losing 13 percent to $2.92, the lowest price since February 1943, according to Global Financial Data in Los Angeles. The largest U.S. automaker, burning cash as U.S. sales slide, is being pushed closer to bankruptcy as it waits to learn whether the auto industry will win a new round of government loans.

`Huge Deal'

``If GM disappears or goes into bankruptcy, I think politically and psychologically it's a huge deal,'' said Stephen Wood, who helps manage $181 billion as a senior portfolio strategist at Russell Investments in New York. ``Worrying about earnings is a luxury right now. We're worried about survivorship.''

House Speaker Nancy Pelosi said she wants ``immediate action'' to give automakers additional aid, and wants it done this year before a new session of Congress takes power in January.

Ford Motor Co., the second-largest U.S. automaker, sank 6.7 percent to $1.80, a 26-year low.

Tyco lost $3.60 to $21.74, the most since July 2002. The largest maker of security systems said fiscal 2009 and first- quarter profit will trail analysts' estimates, hurt by a higher U.S. dollar and slowing global economies. The stock had the steepest drop among industrial companies in the S&P 500, which fell 2.6 percent collectively.

Insurance Rout

The S&P 500 Financials Index slumped 2.4 percent. Goldman Sachs reduced its rating on the life-insurance industry to ``cautious'' from ``neutral.'' The analysts advised selling shares of Prudential Financial Inc., Lincoln National Corp., Principal Financial Group Inc. and Hartford on concern the companies will need to raise more capital and their credit ratings may be cut because of investment losses.

Hartford lost $3.31 to $11.24, while Prudential, Lincoln and Principal slid more than 10 percent each.

``Our capital position is strong, with very strong liquidity,'' Principal Chief Executive Officer Larry Zimpleman said in statement distributed today by Business Wire.

Bob DeFillippo, a spokesman for Prudential, Lincoln's Laurel O'Brien and Hartford's Shannon Lapierre declined to comment.

Genworth, American Express

Genworth Financial Inc., the insurer spun off by General Electric Co., fell 54 percent to $1.24 after being cut out of a federal program that buys short-term debt from financial firms.

American Express Co. lost 6.6 percent to $22.40. The company won U.S. Federal Reserve approval to become a commercial bank, which may give it access to the Treasury's $250 billion bank rescue program. Worsening credit losses will continue to plague the largest U.S. credit-card company by purchases, said Oppenheimer & Co. analyst Meredith Whitney.

The Chicago Board Options Exchange Volatility Index rose for a second day, increasing 2.4 percent to 61.44. The VIX measures the cost of using options as insurance against declines in the S&P 500.

``No one is really willing to stick their neck out in this market,'' said Craig Hodges, a fund manager at Dallas-based Hodges Capital Management Inc., which oversees $1 billion. ``If you listen to the company forecasts and the news going on, there's no overwhelming reason to do so.''

Oil's Slump

Energy companies and raw-material producers in the S&P 500 fell 3.1 percent and 4.2 percent, respectively.

Crude oil closed at a 19-month low of $59.33 in New York and slid as low as $58.32 amid speculation the International Energy Agency will lower its 2009 demand forecast because of decreased fuel use. Natural gas, oil and cotton led a retreat in the Reuters/Jefferies CRB Index that tracks 19 commodities.

Alcoa Inc. sank 7.1 percent to $10.94. The largest U.S. aluminum producer announced production cuts for the second time in five weeks because of an ``unprecedented'' decline in prices.

Exxon Mobil declined 1.9 percent to $72.65. Hess Corp., the fifth-biggest U.S. oil company, lost as much as 11 percent.

Tyson Foods Inc. tumbled 24 percent to $5.11. The second- largest U.S. chicken producer was downgraded to ``underweight'' from ``overweight'' at JPMorgan Chase & Co., which said the stock may drop 40 percent as losses next year put the company in danger of violating debt agreements.

Legg Mason Rallies

Legg Mason Inc. rallied 7.3 percent to $18.65 for the biggest gain in the S&P 500. The asset manager said it has enough capital to support its money funds after setting aside $2.7 billion to insulate investors against losses on mortgage- backed debt.

The company was one of just 65 stocks in the benchmark U.S. index to advance.

The S&P 500 trades at 11.6 times estimated earnings. That's below its three-year average of 15.2, according to Bloomberg data.

Benchmark indexes pared declines for about an hour this afternoon as regulators said the U.S. will increase mortgage modifications to reduce foreclosures and BlackRock Inc. Chief Executive Officer Laurence Fink said he sees signs of ``capitulation'' in financial markets.

Fannie Mae and Freddie Mac, the largest U.S. mortgage- finance companies, will target loans in which borrowers are at least 90 days delinquent and have high loan-to-income ratios, according to officials at a press conference in Washington.

`Explore All Tools'

``We must explore all tools to help homeowners and increase the availability of mortgage finance,'' said Neel Kashkari, the Treasury's assistant secretary in charge of the $700 billion bank rescue plan.

Citigroup Inc. also released plans to modify about $20 billion in mortgages, following similar moves by its largest rivals to stem foreclosures. The fourth-biggest U.S. bank said it will reach out to 500,000 homeowners in the next six months who may be at risk of falling behind on mortgage payments.

``The entirety of the problem we see today is based in the frozen mortgage market,'' said Charles Smith, who oversees $800 million as chief investment officer at Fort Pitt Capital Group in Pittsburgh. ``If we can get some resolution on the mortgage mess, it begins to solve all the other problems.''

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: November 11, 2008 16:41 EST