Stocks slid on Thursday, hit by persistent worries about major banks, including Citigroup , and a warning from General Motors about a possible bankruptcy.

Grim economic reports signaling more fallout from the recession added to the negative tone as major indexes traded around 12-year lows, offsetting positive same-store sales and a 15 percent rise in the dividend of Wal-Mart Stores .

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 company.

GE's stock gained 0.3 percent to $6.71, but the exposure to General Electric throughout the U.S. banking system remains a significant concern.

Citigroup shares traded as low as 97 cents on the NYSE. The S&P index of financial stocks <.GSPF> was down nearly 8 percent.

JP Morgan slid 12.2 percent to $16.94 and Bank of America lost 10 percent to $3.23.

The loss of confidence is pervasive. There isn't any magic bullet here that's going to save Citi or Bank of America. The only thing that might save them is if the government comes in and sponsors a bankruptcy, said John Schloegel, a vice president of Capital Cities Asset Management in Austin, Texas.

Until we have some meaningful discussion about doing the right things instead of just throwing money at things like AIG and General Motors, we're not going to solve the crisis we're in.

The Dow Jones industrial average <.DJI> dropped 209.08 points, or 3.04 percent, to 6,666.76. The Standard & Poor's 500 Index <.SPX> slid 23.69 points, or 3.32 percent, to 689.18. The Nasdaq Composite Index <.IXIC> fell 37.08 points, or 2.74 percent, to 1,316.66.

Shares of embattled automaker GM fell 17.3 percent to $1.82 after it said if debtor-in-possession financing was unavailable, it would be forced to liquidate under Chapter 7 of the U.S. bankruptcy code.

Investors worry that GM's demise would send shock waves through the already battered U.S. economy, given that it is a major employer and buyer of supplies from auto parts makers.

Among other drags were shares of big manufacturers like 3M Co , off 4.6 percent at $42.78, after a brokerage cut its price target on the stock, and Caterpillar Inc , down 5.9 percent at $23.95 a day after the stock contributed to the market's relief rally that followed a 5-day slide.

Investors had bet on Wednesday on news of a Chinese stimulus plan, 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.

Exxon Mobil dropped 3.3 percent to $63.51 as U.S. front-month crude shed 2.2 percent, or 98 cents, to $44.40 per barrel.

But on the upside, shares of Wal-Mart added 3.3 percent to $50.07 after the world's largest retailer posted a solid monthly sales report 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.

The Dow Jones index of home builders' shares <.DJUSHB> was down 1.9 percent.

(Additional reporting by Leah Schnurr; Editing by Jan Paschal)