Market down over 600 on recession fears

NEW YORK (CNNMoney.com) -- Stocks tumbled Wednesday afternoon as recession fears resurfaced following a weaker-than-expected retail sales report and dour comments on the economy from Ben Bernanke and another Federal Reserve official.

The credit market showed some signs of easing, as a key overnight bank lending rate fell. But the improvement was slowgoing and failed to reassure investors. Global markets were mostly lower.

The Dow Jones industrial average (INDU) fell as much as 515 points before pulling back a bit. The decline was equal to around 6.4%. The Standard & Poor's 500 (SPX) index lost 5.8% and the Nasdaq composite (COMP) lost 5.5%.

"The path of least resistance seems to be down again," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

Saluzzi said investors were reacting to the weak economic reports from the morning and the still-sluggish credit market.

Better-than-expected quarterly results from Intel, Coca-Cola, Wells Fargo, JPMorgan Chase and a host of regional banks had little impact amid worries about a recession.

San Francisco Federal Reserve Bank President Janet Yellen said the U.S. economy "appears to be in a recession," something many economists, but few Fed officials, have said. Yellen isn't a voting member of the Fed's policy-setting committee this year but is nonetheless seen as influential. (Full story)

Federal Reserve Chairman Ben Bernanke, speaking in the afternoon, said that while policymakers now have the tools they need to fix the financial and credit markets, the economic rebound will take time. (Full story)

The Fed's 'beige book' reading on economic activity was due later in the day.

Although Wall Street has welcomed many of the steps the government and world banks have taken to get money flowing again, investors remain skittish. That's partly because a lot of the programs won't kick in until several months from now.

"After all the damage that's been done, it's going to take a while for people to feel confident again," Saluzzi said.

Stocks rallied sharply Monday, with the Dow up 936 points or 11.1%, its best one-day point gain ever and best one-day percentage gain since 1933. The advance was fueled by bets that the United States would follow Europe in pouring money directly into banks in exchange for shares, as part of the $750 billion bailout plan.

But investors took a "sell the news" approach Tuesday after the government detailed plans to invest at least $250 billion in the nation's banks. The Treasury said it will start by investing $125 billion in nine leading banks. (Will it work?)

Last week was Wall Street's worst ever, as the Dow capped a stunning eight-session selloff that cut 2,400 points and 22% off the blue-chip indicator. That erased $2.4 trillion in market value from the Dow Jones Wilshire 5000, the broadest measure of the stock market.

Many market pros are cautiously optimistic that Friday's lows represent the lows of the bear market, or a bottom.

Treasury prices inched higher Wednesday, lowering the corresponding yields. The dollar gained versus the yen and fell against the euro. Oil and gas prices slipped, while gold prices rose.