Stock selloff accelerates

Dow sinks 200 points; Nasdaq, S&P 500 drop almost 3%. Reports show weaker-than-expected consumer spending and a big jump in foreclosures.

By Alexandra Twin, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- A stock selloff gained steam Wednesday afternoon, with the S&P 500 sliding for the third session in a row, as weaker retail sales and a report showing a big number of foreclosures gave investors a reason to retreat.

The Dow Jones industrial average (INDU) lost 200 points, or 2.4%, with under 2-1/2 hours left in the session. The S&P 500 (SPX) index fell 25 points, or 2.7%. The Nasdaq composite (COMP) dropped 48 points, or 2.8%.

The worse-than-expected retail sales was dragging on stocks, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. He said investors were also a little jittery about the bevy of banks rushing to raise capital to pay back the government bailout money they received.

Detrick said that over the last two years, when the monthly retail sales report missed forecasts, the S&P 500 generally closed more than 1% lower on the session.

"We were due for a pause here and with questions about the consumer and the banks, investors are finding an excuse to take some profits," he said.

Stocks seesawed Tuesday as investors showed caution after a roughly 2-month rally that propelled all the major stock gauges by at least 30%. That hesitation remained in place Wednesday.

Stocks have risen since early March on bets that the economy is close to turning a corner. But April reports on retail sales and the housing market threw such bets into question.

Economy: Retail sales fell 0.4% in April, according to a report from the Commerce Department released before the market open. Sales were expected to hold steady, according to a consensus of economists surveyed by Briefing.com. Sales fell a revised 1.3% in March.

Sales excluding volatile autos fell 0.5% in April, after dropping 1.2% in the previous month. Economists forecasts had called for a rise of 0.2%.

The number of U.S. households facing foreclosure jumped 32% in April versus a year ago, according to RealtyTrac. More than 342,000 homes received notices of default in the month, up 1% from March.

In other economic news, March business inventories fell 1% after falling 1.4% in the previous month. Economists expected inventories to have fallen 1.1%.

Company news: AIG (AIG, Fortune 500) shares slipped as the company's CEO discussed restructuring plans at a House hearing about how the company plans to pay back billions in government loans.

In other news, Intel (INTC, Fortune 500) was fined a record $1.45 billion by the European Union for allegedly anti competitive practices, a decision the chipmaker plans to appeal. Shares were little changed.

Freddie Mac (FRE, Fortune 500) posted a $9.9 billion quarterly loss after the market close Tuesday and also asked the government for another $6.1 billion in aid.

GM (GM, Fortune 500) shares continued to slide on concerns that it will have to file for bankruptcy, with the stock touching $1 per share, the lowest level since 1933.

Market breadth was negative. On the New York Stock Exchange, losers topped winners six to one on volume of 690 million shares. On the New York Stock Exchange, decliners beat advancers four to one on volume of 1.09 billion shares.