Dow loses 679.95 as economy and Bernanke revive fear

By Charles Mikolajczak

NEW YORK (Reuters) - U.S. stocks tumbled on Monday as signs of a deepening economic slump around the world erased much of last week's sharp gains, with banks and retailers among Wall Street's biggest casualties.

Adding to the market's woeful day, the arbiter of U.S. business cycles declared that the United States entered recession in December 2007 and Federal Reserve Chairman Ben Bernanke said the U.S. economy remained under considerable strain.

"Things are looking quite bleak. Everyone acknowledges that," said Brian Gendreau, investment strategist at ING Investment Management in New York. "The question is to what extent is that already priced into the markets. Apparently, not entirely."

Shares of the largest U.S. banks tumbled as investors feared the dramatically slowing economy will undercut their businesses as the credit crisis simmers. An influential analyst also forecast tighter lending will hurt the economy and, as a result, squeeze meagre bank profits.

The S&P financial index .GSPF shed a record 17 percent as Citigroup (C.N) sank 22.2 percent to $6.45. Bank of America (BAC.N) slid 21 percent to $12.85.

The Dow Jones industrial average .DJI dropped 679.95 points, or 7.70 percent, to end at 8,149.09. The Standard & Poor's 500 Index .SPX slid 80.03 points, or 8.93 percent, to 816.21. The Nasdaq Composite Index .IXIC lost 137.50 points, or 8.95 percent, to 1,398.07.

$1 TRILLION 'PAPER LOSS'

Monday's sharply lower close snapped a five-day winning streak for the S&P 500. It was also the Dow's second-worst daily percentage drop this year.