WALL Street ended its worst January ever by stumbling again over the banking system and the economy.

The major indexes all fell sharply for the second straight day, leaving the Dow Jones industrial average and Standard & Poor's 500 index with record percentage drops for January - 8.84 percent and 8.57 percent, respectively. Some market watchers believe that's a bad omen for the rest of the year, as the market usually ends a year down after having fallen in January.

Investors began the day on edge about the economy and were further rattled by reports that the government's plans to help banks may have hit a snag. Investors have been hoping that the government would create what's being called a "bad bank" to buy financial companies' toxic assets, removing them from banks' balance sheets. But some in Washington suggested the administration may be re-examining that idea because of its cost.

"So many people were anticipating good announcements about the bad bank over the weekend, but now, not expecting any good news," said Anton Schutz, portfolio manager of the Burnham Financial Industries Fund and the Burnham Financial Services Fund.

Earlier in the day, investors found little solace in a milder-than-expected report on fourth-quarter economic activity. In fact, the report only heightened concerns that the economy is worsening.

Gross domestic product, the widely followed measure of the economy, shrank at a 3.8 percent pace in the final three months of 2008, the Commerce Department reported. That compared with a 0.5 percent decline the previous quarter.

Yesterday's reading was much better than the 5.4 percent drop economists expected. But many analysts suspect the economy is shrinking at an even faster pace in the first quarter. Weak earnings reports and rising job losses are helping to solidify that belief.

"We expected fourth quarter to be the worst of the recession," said Randy Frederick, director of trading and derivatives at Charles Schwab. "From an investor's perspective, they may see this stronger-than-expected report setting us up for the first quarter to be worse.

"Each time you get a report that indicates that maybe we hadn't bottomed out yet, it prolongs the recovery."

The Dow fell 148.15, or 1.82 percent, to 8,000.86 after falling 226 on Thursday on negative employment and housing news.

The S&P 500 fell 19.26, or 2.28 percent, yesterday to 825.88, and the Nasdaq composite index fell 31.42, or 2.08 percent, to 1,476.42.

The Russell 2000 index of smaller companies fell 9.71, or 2.14 percent, to 443.53.

Declining issues outnumbered advancers by 3 to 1 on the New York Stock Exchange, where consolidated volume came to 5.22 billion shares, up from 4.87 billion on Thursday.

Volatility was high this week, with the market zigzagging on a mix of earnings and economic news as investors tried to determine what the rest of 2009 will bring. In the end, the Dow fell 0.90 percent for the week, while the S&P 500 fell 0.70 percent and the Nasdaq dipped 0.10 percent. It was the market's fourth straight losing week.

Yesterday's corporate earnings reports were anything but encouraging.

Evidence that consumers are cutting back on even the most basic of items came as Procter & Gamble Co. said sales in the fourth quarter dipped 3 percent on weakening demand for its products - which include Tide detergent, Olay skin cream and Crest toothpaste. The company also lowered its earnings projections for the full year, and said it expects sales to fall in the current quarter.

Meanwhile, two of the country's largest oil companies reported feeling the pain of sinking oil prices. Exxon Mobil Corp. said that it surpassed its own record for annual earnings by a U.S. company last year, but saw a big drop in profit during the fourth quarter. Chevron Corp.'s fourth-quarter results also suffered from the late-2008 plunge in oil prices.

Honda Motor Co. slashed its 2009 profit target by more than half as its earnings dropped 90 percent in the latest quarter.

Also yesterday, Japanese electronics maker NEC Corp. said it will cut 20,000 jobs worldwide as it reported a US$1.46 billion loss for the fourth quarter. The cuts are in addition to big staff reductions announced earlier this week by Starbucks Corp., Eastman Kodak, Allstate Corp. and others.

"The market is a forward-looking indicator, but the market sees nothing good in front of us," said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank.

One bright spot came from Amazon.com Inc., which reported late Thursday that its fourth-quarter profit rose 9 percent and easily surpassed analysts' forecasts. The online retailer also provided an optimistic forecast for 2009.

Its shares soared more than 17 percent, adding US$8.82 to US$58.82.

After rising earlier in the day, Exxon and Chevron turned lower. Exxon closed down 52 cents to US$76.48, while Chevron fell 10 cents to US$70.52.

Procter & Gamble shares hit a four-year low of US$54.24 before plunging US$3.72, or 6.4 percent, to close at US$54.50.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.85 percent from 2.87 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, dipped to 0.22 percent from 0.23 percent.

The dollar was mixed against other major currencies. Gold prices soared.

Light, sweet crude for March delivery rose 24 cents to settle at US$41.68 a barrel on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average fell 3.12 percent. Britain's FTSE 100 fell 0.97 percent, Germany's DAX index dropped 2.03 percent, and France's CAC-40 fell 1.19 percent.

The Dow Jones industrial average closed the week down 76.70, or 0.90 percent, at 8,000.86. The Standard & Poor's 500 index fell 6.07, or 0.70 percent, to 825.88. The Nasdaq composite index lost 0.87, or 0.10 percent, closing at 1,476.42.

The Russell 2000 index, which tracks the performance of small company stocks, fell 0.83, or 0.17 percent, to 443.53.

The Dow Jones Wilshire 5000 Composite Index - a free-float weighted index that measures 5,000 U.S. based companies - ended at 8,335.64, down 49.49 points, or 0.59 percent, for the week. A year ago, the index was at 14,091.09.