Stocks Continue to Drop, Unemployment Climbs to Seven-Year High

U.S. stocks dropped for a second day as jobless claims climbed to a seven-year high, factory orders slumped more than economists forecast and rising borrowing costs spurred concern companies will struggle to secure financing.

Caterpillar Inc., Alcoa Inc. and Deere & Co. tumbled more than 5 percent as the jump in unemployment claims and bank lending rates heightened concern the government's $700 billion bank rescue won't be enough to spur economic growth. General Electric Co. lost 8 percent after selling $12 billion in shares at less than yesterday's closing price. Monsanto Co. slid 17 percent, its steepest intraday loss in five years, after Merrill Lynch & Co. said slumping demand will hurt farm companies.

"The fact that banks are still being cautious, that we're seeing companies finding it hard to raise debt, means people are going to lose their jobs and that has knock-on effects for the whole economy,'' said Andy Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London.

The Standard & Poor's 500 Index slid 23.99, or 2.1 percent, to 1,137.07 at 10:04 a.m. in New York. The Dow Jones Industrial Average lost 199.68, or 1.8 percent, to 10,631.39. The Nasdaq Composite Index slipped 2 percent to 2,027.49. Fifteen stocks retreated for each that rose on the New York Stock Exchange.

The S&P 500 has slumped 23 percent this year as the subprime mortgage crisis brought down banks including Lehman Brothers Holdings Inc. and made borrowing more expensive for companies and consumers. Billionaire Warren Buffett, the world's preeminent stock picker, described the world's largest economy yesterday as being "flat on the floor'' after a cardiac arrest.

The cost of borrowing in dollars in London for three months rose for a fourth day, signaling that banks haven't started to lend after the U.S. Senate approved a plan to rescue beleaguered financial institutions. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 6 basis points to 4.21 percent today, the highest since Jan. 11.