Wall Street drops on worries about deep slowdown

By Kristina Cooke

NEW YORK (Reuters) - U.S. stocks dropped on Friday in a worldwide sell-off with investors cashing out of stocks as signs mounted that the global economic slowdown could be deeper than feared and the corporate profit outlook darkened.

It was not the bloodbath many had feared, however, even though stocks ended at 5-1/2-year lows. In the overnight hours, selling was so fierce that index futures were halted until after Wall Street's opening bell.

Stock markets tumbled around the globe on Friday. The MSCI's all-country world index dropped 5 percent on more evidence of a sharp slowdown in Europe and a rash of profit warnings worldwide.

Forced liquidations by hedge funds and mutual funds to raise cash to meet large-scale redemptions by investors made the losses even steeper, analysts said.

Energy companies such as Chevron (CVX.N) also tumbled as the price of oil slid $3.69 to settle at $64.15 a barrel on bets the global economic slowdown will cut into demand for fuel, despite OPEC's decision to cut output.

"It's been a tumultuous week. There is still a lot of fear out there about whether there is another shoe to drop, whether we have seen the lows," said John O'Brien, senior vice president at MKM Partners in Cleveland. "Most managers, I think, have been selling positions in order to have cash on hand. That is definitely a factor."

"Overseas markets portrayed a horrible opening -- but we are usually the dog that wags the tail and not the other way around, so some of that extreme fear eased during our session."

Estimates for S&P 500 third-quarter earnings growth fell further, with analysts on average expecting an 11 percent decline -- sharply below the 2.9 percent decline seen at the beginning of October, according to Thomson Reuters data.