By Rodrigo Campos

Concerns about the prospect for more financial sector losses stemming from the credit crisis also added to the negative tone, with shares of Citigroup sliding nearly 8 percent, and JPMorgan Chase off more than 3 percent.

Alcoa Inc posts financial results after the market's closing bell. After Deutsche Bank recommended selling the stock, the blue-chip aluminum producer fell nearly 8 percent on the New York Stock Exchange.

Investors can't see where any encouraging news will come from, and profit outlooks could be even bleaker than the market's already meager expectations, traders said.

"Investors don't see catalysts. There's a real worry that earnings estimates are just too optimistic," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

Fourth-quarter S&P 500 earnings are expected to decline 15.1 percent from a year earlier, marking the sixth straight quarterly decline in profits, according to Thomson Reuters estimates.

The Dow Jones industrial average <.DJI> fell 68.82 points, or 0.80 percent, at 8,530.36. The Standard & Poor's 500 Index <.SPX> shed 13.63 points, or 1.53 percent, at 876.72. The Nasdaq Composite Index <.IXIC> lost 22.93 points, or 1.46 percent, at 1,548.66.

The slide made a dent in the market's gains since the November 21 low and increased the indexes' losses since the start of 2009. Even so, the benchmark S&P 500 index is 16.3 percent above its November low.

The fall in Citigroup shares followed news that the embattled U.S. bank is nearing a deal to sell a controlling stake in its Smith Barney retail brokerage business to Morgan Stanley .

"The perception is that this is a desperate measure taken by a firm in turmoil to try to throw itself a lifeline," Ablin added.

The Wall Street Journal, citing people familiar with the matter, said Citigroup would likely report a quarterly loss of at least $10 billion.

In another sign of the deepening recession, copper prices slid 6 percent after a source said China's State Reserves Bureau could have suspended planned copper purchases.

Investors also sold off shares of energy companies including Exxon Mobil on concerns oil demand will be hurt by the economic slump. U.S. crude oil futures fell 6.8 percent to $38.09 a barrel.

Alcoa, down 7.6 percent to $9.99, was among the top drags on the Dow, while the S&P materials index <.GSPM> shed 3 percent.

Caterpillar , a maker of excavators and bulldozers, was the top drag on the Dow with a slide of 3.2 percent to $41.80 on the NYSE.

On Nasdaq, shares of Apple Inc fell 2.2 percent to $88.56.

But there were bright spots due to deal activity. Shares of Advanced Medical Optics surged 144 percent to $21.61 after the company agreed to be bought by Abbott Labs for nearly $1.4 billion.

In response to the faltering economy, President-elect Barack Obama asked President George W. Bush to seek from Congress the remaining $350 billion of the $700 billion financial industry bailout, and he agreed to do so, the White House said.

Obama, who will be sworn in on January 20, has vowed to restructure Washington's financial rescue plan to stem mortgage loan foreclosures.

(Additional reporting by Ellis Mnyandu; Editing by Kenneth Barry)