Stocks extended their slide to 12-year lows on Thursday as General Motors' warning of possible bankruptcy and concerns about the fate of the banking system sped investors' flight from riskier assets.

Grim economic reports signaling more fallout from the recession added to the negative tone as major indexes traded around 12-year lows, more than giving back Wednesday's rally.

Worries about the financial system's health hit bank stocks again as investors focused on the possibility that troubles in the finance arm of General Electric could lead to a debt rating downgrade for the entire conglomerate.

General Motors shed 17.7 percent to $1.81 after its auditors raised substantial doubt about the automaker's viability if it fails to head off losses and stop burning cash.

Shares of Citigroup , once the world's largest bank by market value, fell as low as 97 cents, trading below $1 for the first time.

The auto industry is effectively being wiped out or nationalized, however you want to think about it, said Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, California.

Now you're talking about a good portion, if not all, of the banking sector being wiped out. It's just getting relatively dire.

The Dow Jones industrial average <.DJI> fell 270.09 points, or 3.93 percent, at 6,605.75. The Standard & Poor's 500 Index <.SPX> lost 30.09 points, or 4.22 percent, to 682.78. The Nasdaq Composite Index <.IXIC> gave up 47.15 points, or 3.48 percent, at 1,306.59.

Both the Dow and S&P 500 are down more than 20 percent for the year so far. Investors had bet on Wednesday on news of a Chinese economic stimulus plan, helping stocks snap a five-day losing streak, but Premier Wen Jiabao, speaking to parliament on Thursday morning, did not announce any expansion of China's 4 trillion yuan ($585 billion), two-year package.

GE's stock was flat at $6.69 after gaining and losing in choppy trading, but the exposure to General Electric throughout the U.S. banking system remains a significant concern.

Moody's Investor Service said on Wednesday it may cut its ratings on Wells Fargo and Bank of America , helping send Wells Fargo down more than 14 percent at $8.29 and Bank of America down nearly 9 percent at $3.27.

Exxon Mobil was among the Dow's biggest weights, dropping 3.7 percent to $63.26 as U.S. front-month crude lost $1.56 to $43.82 a barrel, pressured by deteriorating global economic prospects.

On the upside, shares of Wal-Mart added 3 percent to $49.96 after the world's largest retailer posted solid monthly sales and raised its annual dividend.

Economic news included a report that showed new orders received by U.S. factories fell for a sixth straight month in January.

The Mortgage Bankers Association said on Thursday that one in every eight U.S. households with mortgages, a record share, ended 2008 behind on their mortgage payments or in foreclosure as job losses intensified a housing crisis created by lax lending practices.

(Editing by James Dalgleish)