(By Salman - iStockAnalyst Writer)Wednesday was yet another bad day for the markets, with key US indices losing over 7%, as weak retail sales data spurred recession fears.

The Dow Jones Industrial Average dropped 733.08 points, (-7.87%), to finish at 8577.91. The S&P 500 shrank 90.17 points (-9.03%) to 907.84. The Nasdaq Composite fell 150.68 points, (-8.47%), to end at 1,628.33.

A Commerce department release on Wednesday showed U.S. retail sales fell 1.2% to $375.5 billion in September, after a revised 0.4% drop in August. Economists had forecasted a decline of 0.8%. September's fall in retail sales was biggest in last three years. Retail sales have now declined for three consecutive months. The data reflects the impact of slowing consumer spending due to current turmoil in financial markets.

A separate release showed that an index of New York state manufacturing touched its lowest level in seven years.

A Labor department release on Wednesday showed U.S. producer prices dropped 0.4% in September while core producer prices climbed 0.4%. Economists had forecasted a fall of 0.6% in PPI, and a 0.2% increase in the core PPI.

According to the Beige Book report the economic activities deteriorated throughout the U.S. in September. Consumer spending slowed in most regions. Factory activity was also slow. Retailing, auto sales and tourism declined in "most'' districts, while housing and construction ``weakened or remained low" the report showed.
Fed chairman Ben Bernanke too gave a pessimistic outlook of the economy. The nation is facing a "very serious, too-big-to-fail problem" that creates distortions in the market, and that is "important to address as we go forward" Bernanke said. "Even if the financial markets stabilize, a "broader economic recovery will not happen right away" he said further.

Among retailers, Wal-Mart (WMT) slumped $ 4.39 or 8.06% to $50.05. Home Depot fell (HD) 5.9% while Macys Inc (M) subtracted 17.52%.

Shares of equipment maker Caterpillar Inc. (CAT), a Dow component shed 11.43%.

Energy stocks drifted lower as Crude Oil fell below $75 mark. Exxon Mobil (XOM) tumbled 14% while Chevron (CVX) decreased 12.5%.

Largest US Aluminum maker Alcoa Inc. (AA) slid 12.78%.

Shares of General Motors Corp. (GM) finished 7.87% lower.

Among Technology stocks, Intel Corp. (INTC) fell 5.9% to finish at $14.99. Shares of largest software maker Microsoft (MSFT) declined 5.98% while those of Google (GOOG) were down 6.49%. Oracle Corp. (ORC) and Cisco Systems (CSCO) lost 9.84% and 10.63% respectively. Shares of iPhone maker Apple (AAPL) were down 5.89%.

Online Auctioneer's eBay slipped 13.59% to finish at $15.33 ahead of its quarterly report after the closing bell. For the third quarter, eBay reported net income of $492 million, or 38 cents a share, compared with a loss of $936 million, or 69 cents a share, for the same period last year. Revenue grew 12% to $2.12 billion. Analysts were expecting revenue of $2.14 billion and earnings excluding certain charges of 41 cents a share, according to consensus forecasts from FactSet Research.

Financial stocks were battered on Wednesday. J.P. Morgan Chase & Co. (JPM) declined 5.45%. Citi (C) lost 12.84% while Morgan Stanley (MS) plunged 16.34%.Goldman Sachs (GS) was down 7.93%.

Among Dow component, soft drink maker Coca-Cola Co. (KO) remained a bright spot, with its shares gaining 1.1%.
The Chicago Board Options Exchange Volatility Index, VIX, also referred to as "fear index" shot up 26% to 69.25 on Wednesday, the biggest gain in three weeks.

Situation in money markets continued to improve for a third day on Wednesday, though it is still far from normal. According to the British Bankers' Association, the London interbank offered rate, or LIBOR dropped 9 basis points to 4.55% today. The comparable euro rate declined to 5.18%. The dollar Libor-OIS spread narrowed 6 basis points to 333 basis points.

European Stocks retreated sharply on Wednesday. U.K. FTSE plunged 314.62 points or 7.16% to 4,079.59. The German DAX and the French CAC subtracted 6.49% and 6.82% respectively.

Asian stocks edged lower. Hang Seng Index and benchmark indices in India tumbled over 5%. The Nikkei 225 climbed 1.1%.

NYMEX crude-oil for November delivery declined dropped $4.09, or 5.2%, to close at $74.54 a barrel.

Disclosure: Author does not own any of the stocks discussed here.