By Kristina Cooke
NEW YORK (Reuters) - The Dow sank into a bear market on Wednesday as U.S. stocks fell on growing concerns about the toll that record oil prices are taking on the economy and corporate profits.
After flirting with bear market status for several sessions, the Dow closed 20 percent below its October peak as it was no longer able to withstand the avalanche of warnings about banking losses, surging inflation fears and weakening consumer confidence.
Merrill Lynch struck a negative chord early in the session when it downgraded General Motors, saying the automaker will need $15 billion to shore up liquidity. Merrill added that bankruptcy is "not impossible" for GM if the auto market continues to slump, sending GM's shares down more than 15 percent.
Adding to the gloom, Treasury Secretary Henry Paulson said high oil prices, further home price declines and capital markets turmoil will prolong the American economy's slowdown.
Nervousness abounded a day before the key monthly jobs report after data released on Wednesday showed U.S. private employers slashed 79,000 jobs in June. The ADP data raised expectations for an even more disappointing payrolls report.
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.
"This market is not for the faint-hearted right now," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.
"I really don't see us getting out of this quagmire, this dark zone anytime soon -- I don't believe we'll see a whole lot of positive rhetoric surrounding earnings coming up, given record oil prices and the concern about the global economy slowing."
The Dow Jones industrial average tumbled 166.75 points, or 1.46 percent, to 11,215.51.
The Standard & Poor's 500 Index lost 23.39 points, or 1.82 percent, to close at 1,261.52, while the Nasdaq Composite Index slid 53.51 points, or 2.32 percent, to end at 2,251.46.
The S&P 500 is down 19.4 percent from its October closing peak, while the Nasdaq entered a bear market in February.
Coal mining company shares, including Consol Energy, were hammered throughout the session as the price of coal fell. The Dow Jones coal index plummeted 13.9 percent, led by a plunge of 14.6 percent in the shares of Consol Energy.
Economic bellwether Caterpillar was the biggest drag on the Dow, as its shares dropped 5 percent to $70.42. Shares of General Motors fell 15.1 percent to $9.98. Intel Corp's stock lost 3 percent to $20.93.
There were some bright spots, however. 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 in the shares of JPMorgan Chase & Co, up 1.7 percent at $34.60.
Lehman Brothers' beaten-down stock rose 6.7 percent to close at $22.36 on the NYSE after CNBC reported that the investment bank is issuing stock to employees as a retention effort.
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 $144.32 a barrel.
Trading was moderate on the New York Stock Exchange, with about 1.52 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.42 billion shares traded, above last year's daily average of 2.17 billion.
Declining stocks trounced advancing ones by a ratio of about 3 to 1 on both the NYSE and the Nasdaq.
(Editing by Jan Paschal)