STOCKS BEATEN DOWN

The economy stumbled into a deeper rut with just about every investment play turning sour – from lending money to buying stocks, oil or even hoarding gold.

Jobless claims for benefits hit a seven-year high in the past month, while factory activity tumbled in September to its slowest pace since the 2001 recession.

Stocks got clobbered across the board – especially tech stocks – due to the economic weakness, expected poor earnings reports this month and worry over the House bailout vote.

“You add it all up. . . and it’s pretty damn clear we’re in a recession,” said chief economist Robert Macintosh at Eaton Vance Corp.

The Dow Jones industrial average fell 348.22, or 3.22 percent, to 10,482.85. The Standard & Poor’s 500 Index tumbled 4.03 percent to 1,114.28, off 46.78. The Nasdaq plunged 4.48 percent, or 92.68, to 1,976.72 – a 31/2-year low.

Among shares hit the hardest were insurance companies after Senate Majority Leader Harry Reid (D-Nev.) raised a red flag by saying that “a major insurance company,” without naming it, was on the verge of bankruptcy.

Although he later back-tracked, saying he was only speaking in generalities about the financial sector, the atomic comment sent already battered insurance giants reeling.

Hartford sunk a whopping 32 percent, or $12.20, to $25.91 – knocking off $5.1 billion in market cap including after-market trading. MetLife dropped 14.9 percent to $40.96 and Prudential fell 11 percent to $57.65.

While Reid’s comments fanned the flames, life insurers have been in the cross hairs all week, with Fitch downgrading the sector Monday. Investor anxiety over insurers’ bad investments has sent the cost of buying protection against default soaring for firms such as Hartford.

However, the fear that another AIG problem is lurking may be unfounded, analysts say. “As far as I know, and I’m pretty certain, none of the other major life insurers were doing what AIG was doing,” Rob Haines, an analyst at CreditSights Inc. told Bloomberg.

Meanwhile, the credit breakdown continued to grip much of commerce, from small businesses to larger corporations. One major energy company, Catalyst Energy, had to file for bankruptcy protection on Wednesday after its credit line was pulled.

In many areas, lending has all but shut down. Government data said that short-term borrowing shrank for the third-straight week, hitting a weekly drop that was the worst in seven years.

Crude settled at $93.97 a barrel, off $4.56.

The dollar continued to strengthen against most currencies. The euro fell to $1.3833 yesterday from $1.4061. [email protected]