Sept. 21 (Bloomberg) -- U.S. stocks fell, sending the Dow Jones Industrial Average to its biggest loss in six weeks, as an unexpected drop in an index of Philadelphia-area manufacturing suggested economic growth is weakening.

Hewlett-Packard Co. led the Dow's slide after California's attorney general said the second-largest personal computer maker stopped cooperating with his probe. Walgreen Co. and CVS Corp., the two largest U.S. drugstore chains, declined after Wal-Mart Stores Inc. said it will cut prices on generic drugs.

Stocks retreated in afternoon trading after the Federal Reserve Bank of Philadelphia's general economic index shrank for the first time in three years. Earlier, the Conference Board's index of leading indicators showed an economic slump may extend into next year.

``Investors are beginning to say `Holy cow, this is really a slowdown,'' said Barry Ritholtz, chief investment officer of Ritholtz Capital Partners in New York, which manages about $100 million. ``That's bad for earnings growth and stocks.''

The Dow average retreated 79.96, or 0.7 percent, to 11,533.23, the worst decline since Aug. 9. The Standard & Poor's 500 Index slid 7.15, or 0.5 percent, at 1318.03. The index earlier touched 1328.19, a level not seen since February 2001. The Nasdaq Composite Index slid 15.14, or 0.7 percent, to 2237.75.

Stocks were within striking distance of setting new highs before the reversal. The Dow average is about 190 points away from a record following oil's decline to $60 a barrel and the Fed's decision yesterday to leave borrowing costs unchanged for a second month after 17 consecutive increases.

Economic Concern

While the Fed didn't clarify whether the central bank will refrain from raising rates after pausing yesterday, signs the economy is slowing may leave it little choice.

``Investors are growing more concerned about the economy than the Fed,'' Francois Trahan, the New York-based chief investment strategist at Bear, Stearns & Co., wrote in a note released last night. This is ``a problem going forward since the economy is unlikely to improve anytime soon.''

The Philadelphia Fed's general economic index declined to minus 0.4 from August's 18.5, the steepest monthly decline since January 2001. Readings below zero signal contraction.

Leading Indicators

The Conference Board said its index of leading economic indicators fell 0.2 percent in August, reflecting a drop in building permits and waning consumer optimism. The gauge signals the direction of the economy in the next three to six months.

In a separate report, the Labor Department said initial jobless claims edged up by 7,000 to 318,000 last week.

Hewlett-Packard had the biggest decline in the Dow average. The shares tumbled $1.91, or 5.2 percent, to $34.87. California Attorney General Bill Lockyer said he has run into a ``brick wall'' in his probe of potentially illegal methods the company used to gather information on news leaks by board members.

Chief Executive Officer Mark Hurd is preparing to hold a press conference tomorrow on the matter. The Washington Post reported Hurd had more involvement in the investigation than the company has said. After the market closed, Hewlett-Packard received a request from the U.S. Securities and Exchange Commission for information, the company said. It is cooperating with the request.

CVS plunged $2.96, or 8.4 percent, to $32.47 for the top drop in the S&P 500. Walgreen slid $3.67, or 7.4 percent, to $46.28. Rite Aid Corp. tumbled 24 cents, or 5 percent, to $4.52.

Wal-Mart said prices on almost 300 generic drugs will be lowered to $4 per prescription at 65 stores in the Tampa, Florida, area starting tomorrow. It plans to extend the program to more states next year. The shares fell 41 cents to $48.46.

Medco Falls

Other companies that derive profit from distributing drugs declined. Medco Health Solutions Inc. slumped $2.41 to $60.48. Cardinal Health Inc., the biggest U.S. drug distributor by market value, slid $1.68 to $67. McKesson Corp., the No. 2 drug distributor, dropped 99 cents to $52.97. AmerisourceBergen Corp., the third largest, fell $1.98 to $44.23.

About two stocks fell for every one that rose on the New York Stock Exchange. Some 1.67 billion shares changed hands on the Big Board, 9.1 percent more than the three-month daily average.

Concern about the slowing economy sent a measure of industrial shares falling 1.2 percent for the biggest decline among 10 industry groups in the S&P 500.

FedEx Corp. retreated $1.53 to $106 after the world's largest air-cargo shipper cut its full-year profit forecast because of plans to pay bonuses.

General Motors

General Motors Corp. tumbled 84 cents, or 2.6 percent, to $30.93 for the second-biggest decline in the Dow.

Renault SA and Nissan Motor Co. probably won't buy an equity stake in the world's biggest automaker, according to people familiar with the companies' discussions.

An S&P 500 measure of oil companies climbed 1.5 percent as crude for November delivery increased 1.4 percent to $61.59 in New York.

The advance was driven by speculation the U.S. will renew a push for United Nations sanctions on Iran if negotiations to curb the country's nuclear program don't begin in two weeks.

Exxon Mobil Corp., the world's biggest oil company, rose 67 cents to $64.78. Chevron Corp., the second-largest U.S. oil company, added $1.17 to $62.05.

General Mills Inc. and Carnival Corp. advanced after their earnings exceeded analyst estimates.

General Mills, the No. 2 U.S. cereal maker, jumped $1.73 to $54.75. The company reported profit rose to 74 cents a share, beating the 67-cent average analyst estimate.

Carnival Rises

Carnival Corp. rallied $1.17 to $44.75. The world's largest cruise operator said third-quarter profit increased 4.3 percent, beating analysts' estimates, on increased demand for trips to Alaska and Europe.

Evidence that the pace of the economic slowdown is accelerating sent bond yields on the 10-year Treasury note to six-month lows.

The yield slid 9 basis points, or 0.09 percentage points, to 4.64 percent, according to Cantor Fitzgerald LP. Traders are pricing in about a 12 percent chance the Fed will cut its target rate, according to the Fed funds futures contract for December on the Chicago Board of Trade.

S&P 500 shares, called Spiders, fell 64 cents to $131.87. Nasdaq-100 tracking shares, known by their QQQQ symbol, slipped 25 cents to $40.18.

S&P 500 futures expiring in December slid 6.20 to 1330.30 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures retreated 9 to 1654.75.

The Russell 2000 Index, a benchmark for companies with a median market value of $611 million, fell 1 percent to 727.13. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, slipped 0.6 percent to 13,166.09. Based on its drop, the value of stocks declined by $94.2 billion.

AmerisourceBergen Corp. (ABC US)
Cardinal Health Inc. (CAH US)
Carnival Corp. (CCL US)
Chevron Corp. (CVX US)
CVS Corp. (CVS US)
Exxon Mobil Corp. (XOM US)
FedEx Corp. (FDX US)
General Motors Corp. (GM US)
General Mills Inc. (GIS US)
Hewlett-Packard Co. (HPQ US)
McKesson Corp. (MCK US)
Medco Health Solutions Inc. (MHS US)
Nissan Motor Co. (NSANY US)
Renault SA (RNO FP)
Rite Aid Corp. (RAD US)
Walgreen Co. (WAG US)
Wal-Mart Stores Inc. (WMT US)

To contact the reporter on this story: Allen Wan in New York at awan3@bloomberg.net.

Last Updated: September 21, 2006 17:40 EDT