July 31 (Bloomberg) -- U.S. stocks fell, capping a second monthly drop for the Standard & Poor's 500 Index, after economic growth trailed forecasts, jobless claims rose to a five-year high and Exxon Mobil Corp.'s profit missed analysts' estimates.

``The data put the market on notice that the economy is slowing,'' said Quincy Krosby, who helps manage $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``It's not equity friendly.''

Caterpillar Inc., Boeing Co. and Walt Disney Co. led the retreat after the Commerce Department said the economy grew at a 1.9 percent rate last quarter and contracted at the end of 2007. Exxon Mobil fell, extending the worst monthly slump for S&P 500 energy companies since at least 1989, after declining production slowed earnings growth. Benchmark indexes extended their tumble late in the day as former Federal Reserve Chairman Alan Greenspan said the housing slump will worsen.

The S&P 500 slid 16.88 points, or 1.3 percent, to 1,267.38, leaving the benchmark index down 1 percent in July. The Dow Jones Industrial Average lost 205.67, or 1.8 percent, to 11,378.02. The Nasdaq Composite Index slipped 4.17, or 0.2 percent, to 2,325.55. More than two stocks retreated for each that rose on the New York Stock Exchange.

Jobs Concern

The S&P 500 trimmed its rebound from an almost three-year low on July 15 to 4.3 percent. The 448,000 increase in jobless claims weighed on stocks as investors await tomorrow's government report forecast to show the nation lost 75,000 jobs in July. Even though the majority of companies have beaten estimates, S&P 500 profit growth has slumped 17 percent on average from a year earlier, according to data compiled by Bloomberg.

Today's decline followed a 4 percent, two-day rally in the S&P 500 that was spurred by U.S. Steel Corp.'s better-than- estimated profit and a drop in oil to the lowest level since May. The Dow ended the month with a 0.3 percent gain, while the Nasdaq posted a 1.4 percent increase.

Caterpillar, the largest maker of bulldozers, slumped 3.5 percent to $69.52 today. Boeing, the world's second-biggest commercial airplane maker, lost 4.3 percent to $61.11.

Disney, the biggest theme-park operator, dropped $1.32, or 4.2 percent, to $30.35 even after posting a 9 percent gain in third-quarter profit and beating analysts' estimates.

The Commerce Department report on gross domestic product showed the drag from the worst housing slump since the Great Depression and rising unemployment blunted the impact of federal tax rebates. Economists surveyed by Bloomberg had forecast growth of 2.3 percent in the second quarter.

`Markets Don't Like It'

The economy shrank 0.2 percent in the fourth quarter last year, compared with a previously reported 0.6 percent gain. The report also contained annual revisions that lowered the growth rate back to 2005.

``The markets don't like it,'' said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. ``You listen to a market of optimists who think the worst is over and that it's gonna be OK, but this data is showing you it's not.''

Exxon slid $3.95, or 4.7 percent, to $80.43. Production tumbled 7.8 percent after assets were seized in Venezuela, Nigerian workers went on strike and record prices triggered contract clauses that give oil-rich governments a bigger share of output.

The S&P 500 Energy Index slumped 3.4 percent, extending its July retreat to 14 percent.

MasterCard Inc. dropped $26.58, or 9.8 percent, to $244.15. The world's second-biggest credit-card company suffered the worst decline in New York trading since it went public in 2006 as U.S. spending growth slowed and expenses exceeded analysts' estimates.

Akamai Technologies Inc. fell the most in the S&P 500, losing $7.91, or 25 percent, to $23.34. The largest supplier of software to speed up Web services lowered its profit forecast.

`Pretty Hard'

U.S. stocks likely will keep falling until consumer and business loans are more readily available, Merrill Lynch & Co.'s chief investment strategist said.

``It's going to be pretty hard for the stock market to bottom and form a bull market without credit conditions easing,'' said Richard Bernstein in a Bloomberg Television interview. ``Clearly credit issues aren't easing just yet.''

Greenspan told CNBC that falling U.S. home prices are ``nowhere near the bottom'' and the resulting market turmoil isn't showing signs of ending.

VIX Jumps

The VIX, as the Chicago Board Options Exchange Volatility Index is known, added 8.2 percent to 22.94. The index measures the cost of using options as insurance against declines in the S&P 500.

Washington Mutual Inc. rallied after Toscafund Asset Management LLP, the London hedge fund founded by Martin Hughes, reported ownership of a 6 percent stake in the largest U.S. savings and loan. Washington Mutual gained 59 cents, or 12 percent, to $5.33.

ImClone Systems Inc. soared the most since 2002 on Bristol- Myers' offer to buy the portion of the company it doesn't already own, seeking to return to prominence as a maker of cancer drugs. The $4.33 billion deal offers a 29 percent premium over yesterday's closing share price. ImClone rose $17.49, or 38 percent, to $63.93, helping an index of biotechnology companies in the Nasdaq cap an almost 16 percent advance for July, the biggest monthly gain since May 2003.

Motorola Inc., Tyco International Ltd. and Symantec Corp. gained after reporting earnings that topped analysts' estimates.

Motorola jumped the most in four years, rising 96 cents, or 13 percent, to $8.64. The largest U.S. mobile-phone maker posted an unexpected second-quarter profit after the company cut jobs and sales beat estimates.

Tyco, Symantec

Tyco gained $2.05, or 4.8 percent, to $44.56. The world's biggest maker of security and fire systems beat analysts' estimates with a third-quarter profit of $199 million, led by higher sales of industrial valves and metal tubing. The company said profit this year will exceed its previous forecast.

Symantec gained $1.38, or 7 percent, to $21.07. The world's biggest maker of security software gave a better-than-anticipated forecast, saying the U.S. economic slowdown isn't curbing growth.

All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20 percent or more since September as credit losses surged and record commodity prices stoked inflation. Brazil last week became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco avoided such slumps.

Descent From October

The S&P 500 has declined 19 percent since its October record as financial institutions worldwide posted $480 billion in writedowns and credit losses stemming from the collapse of the subprime mortgage market. Equities also retreated as inflation increased, giving the U.S. consumer price index the steepest gain since 1991.

``If people believe we're in a recession, then perception is reality and they're going to behave like we're in a recession,'' said Malcolm Polley, who helps oversee about $1.1 billion as president and chief investment officer at Stewart Capital Advisors in Pittsburgh.

Consol Energy Inc. dropped the most in six years, losing $14.11, or 16 percent, to $74.39. The second-biggest U.S. coal producer by market value said second-quarter profit declined 34 percent absent asset sales from a year earlier.

International Paper Co. gained the most in the S&P 500, increasing $3.40, or 14 percent, to $27.72. The world's largest maker of office paper said second-quarter profit rose, beating analysts' estimates, because of higher prices and investments outside North America.

Schering-Plough Corp. gained, leading health-care stocks to a 0.3 percent advance, the only gain among 10 industries in the S&P 500. Schering-Plough increased $1.03, or 5.1 percent, to $21.08 after the drugmaker was upgraded to ``buy'' from ``neutral'' by analysts at Merrill Lynch & Co., who said the company has a better near-term outlook for product approval than its competitors.

Express Scripts Inc. advanced $3.91, or 5.9 percent, to $70.54 after the third-largest U.S. manager of drug benefits said profit rose 25 percent as increased use of generic medicines lowered the cost of customer claims.

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

Last Updated: July 31, 2008 16:38 EDT