* U.S. should plan for more fiscal stimulus -Obama adviser
* Oil futures settle down 1.8 pct, denting energy shares
* Indexes down: Dow 1.9 pct; S&P 1.9 pct; Nasdaq 2.3 pct
* For up-to-the-minute market news click []
(Updates to close)
By Edward Krudy
NEW YORK, July 7 (Reuters) - U.S. stocks fell to their
lowest level in 10 weeks on Tuesday as talk of a second
government stimulus plan heightened fears that the economy is
not yet on the path to recovery and that the corporate earnings
season starting this week will be weak.
A member of the Obama administration's economic advisory
panel said the United States should plan to possibly provide a
second round of stimulus funds to prop up the economy. The
comments come as investors question earlier optimism for a
quick recovery, which had driven stocks as much as 40 percent
higher since early March. For details, see []
"It's clear that over the last three plus weeks that
investors are becoming concerned that the recovery in the
economy will not come as soon as expected and will not be as
strong as expected," said Hugh Johnson, chief investment
officer of Johnson Illington Advisors in Albany, New York.
"When there's talk about another stimulus plan that adds
fuel to that fire, it intensifies the concerns about the timing
and strength of the recovery."
Cyclical stocks in the materials, energy, and industrial
sectors, which had ridden a recent upswing in raw material
prices on recovery hopes, led the market down as commodity
prices eased. Copper, a barometer of global economic strength,
fell nearly 2 percent.
Caterpillar Inc <CAT.N> ,a maker of heavy machinery for
construction and mining companies, shed 4.5 percent to $30.29.
The Dow Jones industrial average <> dropped 161.27
points, or 1.94 percent, to 8,163.60. The Standard & Poor's 500
Index <.SPX> fell 17.69 points, or 1.97 percent, to 881.03. The
Nasdaq Composite Index <> lost 41.23 points, or 2.31
percent, to 1,746.17.
The S&P 500 closed at its lowest level since May 1 while
the Dow industrials closed at their lowest level since April
28.
An initial snapshot of the second-quarter performance of
natural resource companies will come on Wednesday when Alcoa
Inc <AA.N> kicks off quarterly earnings season. The aluminum
producer, a Dow component, is expected to post a third
consecutive quarterly loss. For an Alcoa earnings preview, see
[].
S&P 500 corporate earnings are expected by analysts to have
declined about 36 percent from a year ago, according to data
compiled by Thomson Reuters. That would be roughly the same as
the decline seen in the first quarter.
Doubts about the strength of an economic recovery and
subsequent demand for oil have sent crude prices tumbling in
the last week. New York crude <CLc1> fell 1.8 percent on
Tuesday and is down about 14 percent from the intraday peak hit
on June 30. Its slide has pressured energy stocks.
Oil services company Schlumberger Ltd <SLB.N> fell 4.4
percent to $49.20 while blue chip Exxon Mobil Corp <XOM.N> lost
2.3 percent to $66.56. The S&P energy sector <.GSPE> index lost
2.5 percent.
Non-cyclical areas of the market, which have been stronger
in recent weeks as investors sought out companies better
positioned to weather a weak economy, initially withstood the
sell-off on Tuesday. But by the end of the day even the
defensive sectors fell victim to selling.
Health care, a classic defensive sector, traded in positive
territory for most of the day but by the close the S&P
healthcare index <.GSPA> fell 0.3 percent -- still
outperforming the wider market.
Drug maker Pfizer Inc <PFE.N>, one of the few Dow stocks to
finish in positive territory, edged up 0.1 percent to $14.59.
A rally in the broad S&P 500 index that had boosted it
about 40 percent from 12-year lows hit in early March has
wilted in the last month as investors sought stronger evidence
that economic conditions were improving.
Trading was below average on the New York Stock Exchange,
with about 1.11 billion shares changing hands, under last
year's estimated daily average of 1.49 billion, while on
Nasdaq, about 2.04 billion shares traded, below last year's
daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by
4 to 1 while decliners beat advancers on the Nasdaq by about 10
to 3.
(Editing by Leslie Adler)
