By Burton Frierson

NEW YORK (Reuters) - More grim news emerged from the U.S. factory sector on Monday as a New York manufacturing gauge fell to a new low in March after national industrial output slumped in February.

The New York Fed's "Empire State" general business conditions index fell to an unexpectedly low reading of minus 22.23 in March -- the weakest since the index was launched in July 2001 -- from minus 11.72 in February.

A separate report showed total industrial output fell 0.5 percent in February -- the biggest drop in monthly output since October -- after rising 0.1 percent in January. It also showed the nation's mines, factories and utilities ran at their slowest rate in more than two years.

The data supports the view of many that the U.S. has fallen into a recession, though it remains to be seen how deep it will be.

"Look, all the economic statistics are plunging right now. This is just a sign of how deep this recession is going to be," said Brian Fabbri, chief U.S. economist at BNP Paribas in New York.

Many are concerned that turmoil in financial markets will put added strain on the U.S. economy.

U.S. stocks slid at the open as the agreed takeover of troubled Wall Street bank Bear Stearns fueled fears that the global credit crisis is spiraling out of control. The dollar remained mired at lower levels across the board.

Government bonds which benefit from signs of economic weakness, posted strong gains on the day.