Jan. 7 (Bloomberg) -- U.S. stocks slid, erasing most of the market’s 2009 gain, as a private report showed employers cut more jobs than estimated in December and companies from Alcoa Inc. to Intel Corp. spurred concern the profit outlook is worsening.

Alcoa tumbled 10 percent after the largest aluminum producer said it will cut production and trim its workforce by 13,500 jobs as it combats plunging prices. Intel, the biggest chipmaker, sank 6.1 percent as sales trailed its forecast. Banks and energy producers led declines in all 10 industry groups in the Standard & Poor’s 500 Index after ADP Employer Services’ said payrolls shrank by 693,000 jobs, the most since records began in 2001.

“This is an eye-poppingly bad number,” Art Hogan, the New York-based chief market analyst at Jefferies & Co., said of the ADP report. “The economy is in very difficult shape and that’s been proved out over the economic data from the past month.”

The S&P 500 fell 3 percent to 906.65, its steepest drop since Dec. 1, and trimmed its 2009 advance to less than 0.4 percent. The benchmark index tumbled 38 percent in 2008, its worst yearly loss since 1937. The Dow Jones Industrial Average sank 245.4 points, or 2.7 percent, to 8,769.7 and is down 0.1 percent on the year. The Russell 2000 Index dropped 3.4 percent.

Benchmark indexes sank as the ADP report showed companies accelerated layoffs as the recession entered a second year. The Labor Department may report in two days that employers slashed jobs in December for a 12th consecutive month, putting total job cuts at 2.4 million for 2008, according to a Bloomberg survey.

Oil Plummets

A 12 percent tumble in crude oil, the steepest drop in more than seven years, snapped an eight-day stretch of gains for the S&P 500 Energy Index, the group’s longest rally since April.

About 10.6 billion shares changed hands on all U.S. exchanges, 6 percent more than the three-month daily average.

Alcoa slid $1.23 to $10.89. The company will trim aluminum production by 135,000 metric tons and pare costs as the global recession lowers demand for the lightweight metal used in cars, planes and appliances. The price of aluminum fell 36 percent last year as inventories more than doubled to a 14-year high.

Intel slumped 93 cents to $14.44. Fourth-quarter sales dropped 23 percent, missing a forecast that the chipmaker cut by $1 billion less than two months ago as the economic slump kills demand for personal computers. Intel’s sales decline surpasses the 20 percent drop it reported in the fourth quarter of 2001, after the technology bubble burst.

‘Shut Down’

“Intel is reinforcing that maybe some of the gains we had were more sentiment-based than fundamentally-based,” said Anthony Dwyer, equity market strategist at FTN Midwest Securities Corp. in New York. The global economy is “largely still shut down.”

The S&P 500 has climbed 20 percent from an 11-year-low on Nov. 20 on speculation the economy will recover as President- elect Barack Obama cuts taxes and boosts spending on health care, infrastructure and alternative energy.

Morgan Stanley dropped 7.6 percent to $18.10. Goldman Sachs Group Inc. retreated 4.8 percent to $84.50. U.S. banks will need to raise additional capital in 2009 after downgrades of mortgage-backed securities surged in the fourth quarter, Oppenheimer & Co. analyst Meredith Whitney said in a note to clients yesterday.

Rating cuts accelerated last year, including about $2.3 trillion of securities in the fourth quarter alone, Whitney said. U.S. bank earnings this year will be hurt by as much as $40 billion of further writedowns and credit-rating cuts, she said.

Financials Slide

S&P 500 financial companies dropped 5.1 percent, the most among 10 industries. The group has lost two-thirds of its market value in the past two years as writedowns and credit losses around the world reached $930 billion following the collapse of the subprime mortgage market in 2007.

Energy stocks in the S&P 500 slid 3.9 percent as crude fell 12 percent to $42.63 a barrel on the New York Mercantile Exchange after a government report showed bigger-than-expected increases in oil, gasoline and distillate fuel.

Weatherford International Ltd., the fourth-largest U.S. oilfield-services provider, sank 9.5 percent to $12.95. Hess Corp., Valero Energy Corp. and Marathon Oil Corp. lost more than 3.5 percent.

Time Warner Inc. dropped 6.3 percent to $10.29. The owner of HBO and AOL said it will report its first annual loss in six years after writing down the value of its cable-system, publishing and Internet assets by about $25 billion in the fourth quarter.

Media shares in the S&P 500 sank 4.7 percent collectively. News Corp., Viacom Inc. and Walt Disney Co. lost at least 4.6 percent.

‘Very, Very Weak’

Aetna Inc. slid 3.9 percent to $29.18. The third-largest U.S. medical benefits provider was added to Goldman Sachs Group Inc.’s “conviction sell” list. Analysts said the company’s earnings may he hurt by a “cyclical downturn” in the health insurance industry.

Constellation Brands Inc. slumped 8.2 percent to $15.48. The world’s largest winemaker lowered the top end of its full- year profit forecast as the shrinking economy slowed sales.

“The economy is in a very, very weak shape,” Richard Clarida, global strategic adviser at Pacific Investment Management Co., told Bloomberg Radio. “There’s really nowhere in the economy, either in the U.S. or globally, to point to any pocket of strength.”

Earnings of S&P 500 companies have fallen for five straight quarters, matching the longest streaks of declines on record, and the slump is forecast to continue.

Earnings Slump

According to estimates compiled by Bloomberg, profits probably decreased 12 percent last quarter and will drop 11 percent in the first quarter and 6.2 percent in the following three months before rebounding in the second half of the year.

Alcoa, traditionally the first Dow average company to release results, is scheduled to kick off the fourth-quarter earnings season next week.

Monsanto Co. jumped 18 percent to $86.16, the steepest gain since Oct. 13. The world’s largest seed producer said fiscal first-quarter net income more than doubled after it boosted sales of Roundup weed-killer and corn seeds. The company also increased its full-year forecast.

General Motors Corp. climbed 4.8 percent to $4.13, posting the steeper of only two gains in the Dow. The automaker that may get as much as $13.4 from the Treasury said it has enough government loans to cover its worst-case forecast for U.S. auto sales and won’t need more if the economy holds up.

Family Dollar Stores Inc. rose the most since 2000, jumping 14 percent to $27.81. The retailer known for selling items priced at $1 or less boosted its full-year profit forecast after first-quarter net income climbed 14 percent.

Satyam Computer Services Ltd. American depositary receipts plunged 90 percent to 96 cents before exchanges opened. Ramalinga Raju, chairman of India’s fourth-largest software services provider, resigned after saying he falsified earnings and assets. Trading in the stock has been halted until further notice, the New York Stock Exchange said.

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

Last Updated: January 7, 2009 16:37 EST