New York, United States - The Dow industrials sank to their lowest close in three months on Wednesday after slipping below 12,000 for the first time since mid-March, as worries about a weak economy compounded credit sector concerns and drove shares of banks, autos and transportation companies sharply lower.

Triggering fears of a slowing economy, package delivery company FedEx forecast dismal profits as rising fuel costs could sap demand. Shares of FedEx, closely watched by Wall Street as a proxy for US business activity, fell 2.1 per cent to US$82.60 (S$113) on the New York Stock Exchange.

Adding to the bleak outlook for bank stocks, Fifth Third Bancorp sank 27 per cent to US$9.26 and ranked among the Nasdaq's biggest percentage losers. The Midwestern bank said it would cut its dividend and raise US$2 billion in capital, stirring fears that the credit crisis was tightening its grip on commercial banks.

A 2 per cent rise in oil prices above US$136 a barrel compounded concerns about rising raw material costs.

'The autos, financials and transport sectors are very sensitive to the perception that economic growth is waning,' said Mr Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. 'We've had little evidence the economy is at (its) bottom.' Worries were surfacing over the reading of the US second-quarter gross domestic product, due in July, he said.

A Reuters poll of economists see the GDP's growth rate slowing to an annual pace of 0.2 per cent in the second quarter, which would be the weakest since 2002.

The Dow Jones industrial average tumbled 131.24 points, or 1.08 per cent, to 12,029.06 - its lowest close since March 17.

The Standard & Poor's 500 Index fell 13.09 points, or 0.97 per cent, to 1,337.81. The Nasdaq Composite Index dropped 28.02 points, or 1.14 per cent, to 2,429.71.

Shares of General Motors fell 5.9 per cent to US$14.89, ranking as the Dow's biggest percentage loser. GM touched US$14.75, its lowest level since the recession of 1982.

Shares of rival Ford Motor fell 5.8 per cent to US$6.22 on the NYSE.

GM's stock fell after Deutsche Bank cut the industry-wide outlook, saying leading indicators pointed toward continued 'recessionary levels' of demand.

The KBW index, which includes money-centre banks like Bank of America, slid 4.2 per cent to an intraday low at 62.36, its lowest since October 2002, after Fifth Third's plan prompted investors to dump other banks' shares.

At the close, the KBW bank index was down 2.9 per cent at 63.21.

Bank of America shares lost 3 per cent to US$28.37 on the New York Stock Exchange, while SunTrust Banks, a regional bank company whose stock is also in the KBW index, sank 9 per cent to US$36.95 in NYSE trading.

Shares of FedEx rival UPS dropped 2.3 per cent to US$65.80.

A rare bright spot was provided by Boeing, whose shares rose 0.4 per cent to US$74.65 after the US Government Accountability Office, a nonpartisan auditing arm of Congress, recommended the Air Force reopen a competition to award a refuelling tanker program, potentially worth US$35 billion.

In February, the Air Force awarded the contract to rival Northrop Grumman and its European partner EADS. Shares of Northrop fell 1.5 per cent to US$70.01 and the stock of EADS, the parent of Airbus, fell 3.4 per cent to 13.55 euros (S$28.8).

Only four of the Dow's 30 components finished higher, with Boeing leading that list.

US crude oil for July delivery rose US$2.67 to settle at US$136.68 a barrel, up 2 per cent for the day.

Trading was moderate on the New York Stock Exchange, with about 1.28 billion shares changing hands, well below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.07 billion shares traded, below last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by a ratio of about 5 to 2 on both the NYSE and the Nasdaq. -- REUTERS