Jan. 14 (Bloomberg) -- U.S. stocks slid the most in six weeks, following European markets lower, after retail sales decreased at more than twice the rate forecast by economists and concern grew over the future of Citigroup Inc.

General Electric Co., Macy’s Inc. and American Express Co. tumbled at least 5.5 percent after the Commerce Department said purchases fell 2.7 percent in December as job losses and dwindling access to credit forced consumers to cut spending. Citigroup tumbled 23 percent, leading the KBW Bank Index to a 13-year low, as Chief Executive Officer Vikram Pandit works to unravel the financial-services empire following four straight quarters of losses.

“The economy is going to feel really bad and we’ll continue to get negative headline news,” said Eric Green, director of research at Penn Capital Management, which oversees $3 billion in Cherry Hill, New Jersey. “There’s massive stimulus that we’ve never seen before coming. That will help the consumer.”

The Standard & Poor’s 500 Index lost 3.4 percent to 842.62, its steepest decline since Dec. 1. The Dow Jones Industrial Average sank 248.42 points, or 2.9 percent, to 8,200.14. The Russell 2000 Index fell 4.4 percent. The MSCI World Index slid 3.1 percent, its sixth straight decline.

All 24 industry groups and 480 of the companies in the S&P 500 fell following the sixth consecutive monthly decrease in retail sales, the longest stretch of declines in records going back to 1992. The VIX, which gauges the cost of using options as insurance against losses in the S&P 500, jumped 14 percent to 49.14 for its biggest gain since Dec. 1.

Consumer Concern

The loss of 2.6 million jobs and declining home and stock values are squeezing all American households, hurting retailers from Wal-Mart Stores Inc. to Saks Inc. Today’s retail-sales figures may serve as a reminder to lawmakers of the urgency to enact President-elect Barack Obama’s stimulus proposals to combat the recession.

The S&P 500 has dropped 6.7 percent in 2009 as companies from Alcoa Inc. to Intel Corp. spurred concern earnings will deteriorate amid the recession, while the unemployment rate in the U.S. climbed to the highest level in almost 16 years.

The index has erased about half of its 24 percent rally from an 11-year low on Nov. 20 as the worsening profit outlook offsets optimism the recession will end this year.

Since the S&P 500 peaked this year on Jan. 6, industries with some of the worst earnings forecasts in 2009 have led the decline. Retailers, whose profits analysts project will fall 20 percent this year, dropped 12 percent, while semiconductor companies that are expected to show a 55 percent earnings slump are down 15 percent, according to data compiled by Bloomberg.

Earnings Slump

Earnings for all companies in the S&P 500 probably fell 20 percent in the fourth quarter of 2008, a sixth straight quarterly drop, according to analyst estimates compiled by Bloomberg. Profits are forecast to decrease in the first two quarters of 2009 before rebounding in the second half.

GE lost 83 cents, or 5.6 percent, to $14.11. Macy’s tumbled 5.8 percent to $9.47. American Express fell 6.1 percent to $17.83.

A gauge of retailers in the S&P 500 dropped 3.6 percent. J.C. Penney Co., the third-largest U.S. department-store company, fell $1.54, or 7.6 percent, to $18.76. Abercrombie & Fitch Co., the teen-apparel retailer with more than 1,000 stores, lost $1.30, or 6.3 percent, to $19.48.

‘Quite Weak’

“The retail sales report for December was quite weak,” Lincoln Anderson, chief investment officer at LPL Financial in Boston, which managed $224 billion as of the end of November, told Bloomberg Radio. “People are wondering just how deep the consumer-led recession will be.”

Citigroup slid $1.37, or 23 percent, to $4.53. The company may sell its CitiFinancial consumer-lending unit and rein in trading with the bank’s own capital after agreeing to cede control of its Smith Barney retail brokerage to Morgan Stanley, people familiar with the plan said.

The KBW Bank Index slumped 6 percent to its lowest closing level since August 1995 as all 24 of its companies slumped.

The worst financial crisis since the Great Depression has forced banks and finance companies to take more than $737 billion of writedowns and credit losses since the start of the credit contraction in 2007.

Huntington Bancshares Inc. dropped 96 cents, or 16 percent, to $4.95. The incoming chief executive officer of the third- largest bank based in Ohio said the company may cut its dividend or raise capital and that “everything is on the table.”

European Banks

Banks led declines in Europe after Deutsche Bank reported a fourth-quarter loss of about 4.8 billion euros ($6.3 billion) as the global financial crisis hurt debt and equity trading. HSBC Holdings Plc, Europe’s largest bank by market value, may have to raise as much as $30 billion and cut its dividend in the half as earnings sink, Morgan Stanley analysts said.

Life insurers slumped amid concerns that losses on fixed- income investments will deplete capital. Principal Financial Group Inc. fell 11 percent to $16.94. Lincoln National Corp. dropped 10 percent to $18. Life insurers are facing an increase in defaults on corporate bonds and commercial mortgages as the recession deepens.

The economy weakened further in the past month across almost all regions, hurt by a lack of credit and slumping retail sales, the Federal Reserve said in its regional business survey.

“Most districts noted reduced or low activity across a wide range of industries,” the Fed said in its Beige Book release, published two weeks before officials meet in Washington to set monetary policy. “Overall economic activity continued to weaken across almost all” regions, the report said.

Cheapest Since ‘91

The S&P 500’s valuation has fallen to about 15 times reported earnings, the cheapest since 1991. The index trades at 11.5 times its companies’ estimated profits over the next 12 months, compared with 9.8 on Nov. 21, when the S&P 500 began its rebound from an 11-year low.

H.J. Heinz Co. slipped 3.5 percent to $35.14. The world’s largest ketchup maker was cut to “market perform” from “outperform” at Sanford C. Bernstein & Co., which said 2010 earnings may be hurt by currency swings.

Blackstone Group LP, the world’s biggest private-equity firm, fell 7.4 percent to $5.67 after it was cut to “underweight” from “overweight” by Barclays Plc. The brokerage also downgraded Fortress Investment Group LLC, a private-equity and hedge-fund manager, to “equal weight” from “overweight.” Fortress lost 6.9 percent to $1.63.

Bunge Ltd. dropped $6.56, or 14 percent, to $41.61. The world’s biggest oilseed processor said earnings last year trailed its forecast because of weaker demand for soybean meal and declining grain prices that prompted farmers to delay sales.

Archer Daniels Midland Co., the world’s largest grain processor, dropped $3.63, or 13 percent, to $24.25.

Allergan Inc. gained $1.43, or 3.6 percent, to $41.01. The company that invented Botox will unveil at the end of this month the eyelash-enhancing drug Latisse, the New York Times reported.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.

Last Updated: January 14, 2009 16:30 EST