S&P 500 plunges into a bear market

By Kristina Cooke

NEW YORK (Reuters) - Stocks tumbled on Wednesday, dragging the S&P 500 into a bear market, as worries about more credit losses hurt financial companies and Cisco Systems led technology shares lower after its CEO raised fears of an extended economic downturn.

The S&P closed 20 percent below its all-time high set in October, making it the last of the three major U.S. stock indexes to fall into a bear market. Stocks have been roiled for months by the credit crisis and a severe U.S. economic slowdown.

In the latest news to scare the market, Cisco's (CSCO.O: Quote, Profile, Research) John Chambers told Reuters that customers of the company, which makes Internet infrastructure, see the economy picking up early in 2009 rather than later this year. At least two brokerages also cut their price targets on the stock.

Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) dropped sharply as some investors worried that the two pillars of the U.S. housing market will need to raise billions of dollars in additional capital through stock sales, diluting the holdings of current investors.

Merrill Lynch (MER.N: Quote, Profile, Research) shares fell more than 9 percent, after Fitch Ratings said it may cut the U.S. investment bank's debt rating, given expected ongoing write-downs and diminished prospects for earnings.

"There is uncertainty about financials as we're going into the earnings season about what write-offs and capital raising might be needed," said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.

"There is also concern that as the earnings reports come out, that the projections for future performance for technology may not be as strong due to the weakness in economy."

All three major stock indexes fell more than 2 percent: The Dow Jones industrial average .DJI shed 236.77 points, or 2.08 percent, to 11,147.44, while the Standard & Poor's 500 Index .SPX tumbled 29.01 points, or 2.28 percent, to 1,244.69. The Nasdaq Composite Index .IXIC fell 59.55 points, or 2.60 percent, to close at 2,234.89.