NEW YORK, Jan 31: US stocks tumbled Friday after the government reported the US economy contracted in the fourth quarter at an annual rate of 3.8 percent, the sharpest fall in 26 years.

The Dow Jones Industrial Average lost 148.15 points (1.82 per cent) to finish at 8,000.86.

The Dow earlier had slipped briefly below the psychological 8,000 level, hitting an intraday low of 7,961.99.

The tech-rich Nasdaq fell 31.42 points (2.08 percent) to 1,476.42 and the broad-market Standard & Poor’s 500 index retreated 19.26 points (2.28 per cent) to 825.88.

It was a disappointing end to the week, and the month, on Wall Street.

Poor economic and earnings reports continued to pile up, sending the S&P 500 to its worst January on record, said Al Goldman, chief market strategist at Wachovia Securities.

Stocks fell after the Commerce Department reported that gross domestic product (GDP) contracted at a 3.8 per cent pace in the 2008 fourth quarter, after shrinking 0.5 percent in the third quarter.

It was the sharpest quarterly decline since 1982 but far less than the consensus forecast of a 5.5 per cent annualized drop.

The headline on this GDP report is not as bad as feared, but the breakdown doesn’t provide much encouragement, said Patrick O’Hare at Briefing.com.

Sal Guatieri, senior economist at BMO Capital Markets, said the figure was “very much an illusion” created by an unexpected increase in business inventories. He predicted the 2009 first quarter could contract more sharply.

Christina Romer, chair of President Barack Obama’s Council of Economic Advisors, warned the deepening recession highlighted the need for a quick stimulus plan.—AFP