Dow enters bear market as stocks slide

By Kristina Cooke

NEW YORK (Reuters) - The Dow sank into a bear market on Wednesday as U.S. stocks fell on growing concerns about the toll that record oil prices are taking on the economy and corporate profits.

After flirting with bear market status for several sessions, the Dow closed 20 percent below its October peak as it was no longer able to withstand the avalanche of warnings about banking losses, surging inflation fears and weakening consumer confidence.

Merrill Lynch struck a negative chord early in the session when it downgraded General Motors, saying the automaker will need $15 billion to shore up liquidity. Merrill added that bankruptcy is "not impossible" for GM if the auto market continues to slump, sending GM's shares down more than 15 percent.

Adding to the gloom, Treasury Secretary Henry Paulson said high oil prices, further home price declines and capital markets turmoil will prolong the American economy's slowdown.

Nervousness abounded a day before the key monthly jobs report after data released on Wednesday showed U.S. private employers slashed 79,000 jobs in June. The ADP data raised expectations for an even more disappointing payrolls report.

Investors sold shares of big-cap technology companies such as Intel Corp and industrial conglomerates like Caterpillar on concerns about economic growth and rising oil prices.

"This market is not for the faint-hearted right now," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.

"I really don't see us getting out of this quagmire, this dark zone anytime soon -- I don't believe we'll see a whole lot of positive rhetoric surrounding earnings coming up, given record oil prices and the concern about the global economy slowing."