Stocks headed for a sharp drop at Thursday's open, weighed down by General Motors' warning about its viability and caution about the outlook for major conglomerate General Electric .

General Electric fell 1.7 percent to $6.67 before the bell as investors fretted about fallout from its embattled finance arm and worried about a possible downgrade of GE's credit rating. On Wednesday, GE hit lows not seen since 1991.

Shares of embattled automaker GM dropped more than 17 percent before the bell to $1.81 after it said there were substantial doubts about its ability to continue as a going concern, offsetting optimism spurred by a solid sales report from Wal-Mart , the world's biggest retailer.

GM said if it was unable to successfully reorganize and if debtor-in-possession financing was unavailable, it would be forced to liquidate under Chapter 7 of the U.S. bankruptcy code.

When you hear the names GM and GE, the companies that built America, that they have problems, that does not give the confidence one would want to reverse the recent trend. That's what it boils down to, said Andre Bakhos, president of Princeton Financial Group in New Brunswick, New Jersey.

It appears that the battle is being lost. It doesn't add confidence. This market is being driven by pure emotion.

A day after Wall Street mounted a relief rebound after a five-day slide, the GM news and unease about GE added to anxiety even as a government report on weekly jobless claims showed that the number of U.S. workers filing new claims for jobless benefits fell more than expected last week.

S&P 500 futures fell 14.10 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures fell 97 points, and Nasdaq 100 futures dipped 8 points.

Shares in Wal-Mart rose more than 3 percent to $50 before the bell.

U.S. stocks had rallied on Wednesday, halting a five-day losing streak that took shares to 12-year lows, as reports of another Chinese stimulus package boosted commodity prices and led energy and natural resource shares higher.

(Editing by James Dalgleish)