NEW YORK - ALL three major US stock indexes plunged more than 2 per cent on Tuesday after a record loss at Citigroup Inc and the worst showing for retailers in five years fuelled fears that the economy was heading into a recession.

Citigroup, the largest US bank, slashed its dividend after writing down US$18.1 billion (S$25.8 billion) for losses tied to subprime home loans and other risky debt, sending its shares down 7 per cent. That added to concerns the global credit crisis is far from over.

The picture for stocks grew grimmer after the government said retail sales unexpectedly fell in December to close out the weakest year at the cash register since 2002. Costlier energy and falling home prices depressed spending during the holiday shopping season.

Investors were also unimpressed by new offerings from Apple unveiled at the annual Macworld convention in San Francisco. Apple's shares slid 5.4 per cent.

'It's a perfect storm of negativity today,' said Mr Michael James, a senior trader at Wedbush Morgan in Los Angeles. He pointed to the combination of dismal results from Citigroup, the poor retail sales figures, Boeing news and the lack of a 'wow' factor from Apple.

Retail sales figures are considered a key benchmark because consumer spending accounts for more than two-thirds of US economic activity.

The Dow Jones industrial average fell 277.04 points, or 2.17 per cent, to close at 12,501.11, to its worst level since April.

The Standard & Poor's 500 Index ended down 35.30 points, or 2.49 per cent, at 1,380.95. The Nasdaq Composite Index dropped 60.71 points, or 2.45 per cent, to close at 2,417.59. -- REUTERS