By Kristina Cooke
NEW YORK (Reuters) - Stocks fell in erratic trade on Wednesday as investors worried about the toll record oil prices are taking on the economy and corporate profits.
Shares of General Motors dropped more than 12 percent after Merrill Lynch said the automaker will need to raise $15 billion to shore up liquidity, adding bankruptcy is "not impossible" if the auto market continues to slump.
Adding to the sour mood, Treasury Secretary Henry Paulson said high oil prices, further home price declines and capital markets turmoil will prolong the American economy's slowdown.
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.
"I think the third quarter is going to be a quarter that is singled out as a period where profit estimates come in line with realistic expectation," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "You will see profit estimates across the board, not just for financials, lowered."
The Dow Jones industrial average fell 82.24 points, or 0.73 percent, to 11,300.02. If the Dow closes at this level, it would officially enter a bear market.
The Standard & Poor's 500 Index dropped 10.71 points, or 0.83 percent, to 1,274.20. The Nasdaq Composite Index shed 32.04 points, or 1.39 percent, to 2,272.93.
Gains in financial stocks kept losses in check on the S&P 500 and Dow. Deutsche Bank, helped calm some of the concerns about banks when Germany's biggest lender said it now expects a quarterly profit compared with a loss a year ago and would not need any more capital.
Deutsche Bank's announcement underpinned gains among bank stocks, with shares of JPMorgan Chase & Co up 2.9 percent at $35.00.
Lehman Brothers stock was up 7.6 percent at $22.55 in late afternoon trading after CNBC reported that the investment bank is issuing stock to employees as a retention effort.
Nervousness abounded a day before the key monthly jobs report. On Wednesday, a report showed U.S. private employers slashed 79,000 jobs in June -- which may spell bad news for the government's report due before Thursday's opening bell.
Economic bellwether Caterpillar was the biggest drag on the Dow, with its stock down 3.8 percent at $71.29. Shares of General Motors fell 13 percent to $10.22. Intel Corp's stock lost 1.8 percent to $21.18.
Coal mining company shares, including Consol Energy sank, and were among the biggest sector drags on the S&P 500 as the price of coal fell.
The Dow Jones coal index was down 11.1 percent in afternoon trading, led by an 11 percent drop in shares of Consol Energy.
The ADP's employment report aside, Wednesday's data brought some brighter news as well, with a boost in demand for aircraft lifting new orders at U.S. factories by an unexpectedly large 0.6 percent in May.
U.S. crude for August delivery jumped to a record $143.91 a barrel in afternoon trading.
(Editing by Jan Paschal)