U.S. stocks fell on Thursday after Federal Reserve Chairman Ben Bernanke said that the economic outlook has worsened and Merrill Lynch & Co. reported the a big loss related to the struggling mortgage lending market.

Merrill, the world's largest brokerage, reported its worst loss since September 2001 in New York Stock Exchange trading after writing down $16.7 billion in failed investments. The company reported a nearly $10 billion quarterly loss and said it took an $11.5 billion write-down during the quarter as a result of poor mortgage bets.

Merrill shares tumbled $5.60 or 10.1 percent to $49.49, dragging the broader bank sector down as investors worried about more write-downs.

The S&P 500, which is off to its worst-ever start to a year, lost 35.54, or 2.6 percent, to 1,337.66 at 3:55 p.m. in New York and is down 8 percent this year. The Dow Jones Industrial Average decreased 279.88, or 2.3 percent, to 12,186.28. The Nasdaq Composite Index slid 29.87, or 1.7 percent, to 2,354.72. Almost five stocks fell for every one that rose on the NYSE.

Shares of companies in the financial sector, including Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns Cos. also tumbled. Goldman lost 3.2 percent, Morgan Stanley fell 1.5 percent and Bear Stearns dropped 6.3 percent.


Fed Chief Bernanke testified before the House Budget Committee today about the outlook for the economy. He warned the government should move quickly to put together a fiscal stimulus plan to help consumers amid rising recession concerns.

Separately, the White House said today that President Bush sees that an economic stimulus package is necessary to help the economy in the short term.

Bernanke urged temporary plans to be quickly executed over the next 12 months in order to avoid the risk of boosting the economy too much beyond the short term and not cause a big jump in the budget deficit.

Traders are betting that the Fed will cut the Fed funds rate--a key short-term interest rate that affects consumer loans-- by at least a half-percentage point, at its next policy meeting that is set to take place January 30.