NEW YORK » Stocks slumped for a second straight day yesterday as investors, already on edge about the worsening economy, were further rattled by a report that Washington's plans to help banks may have hit a snag.

The Dow Jones industrials dropped 4.5 percent over two sessions; broader stock indexes are down more than 5 percent since Wednesday.

Gross domestic product, the widely followed measure of the economy, shrank at a 3.8 percent pace in the final three months of 2008, the U.S. Commerce Department reported. That compared with a 0.5 percent decline the previous quarter.

Yesterday's reading was much better than the 5.4 percent drop economists expected. But many analysts suspect the economy is shrinking at an even faster pace in the first quarter. Weak earnings reports and rising job losses are helping to solidify that belief.

“;We expected fourth quarter to be the worst of the recession,”; said Randy Frederick, director of trading and derivatives at Charles Schwab. “;From an investor's perspective, they may see this stronger-than-expected report setting us up for the first quarter to be worse.

Investors found little solace in a milder-than-expected report on fourth-quarter economic activity.

“;The market is a forward-looking indicator, but the market sees nothing good in front of us,”; said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank.

The Dow Jones industrial average fell 148.55, or 1.82 percent, to 8,000.46. The Standard & Poor's 500 index fell 19.26, or 2.28 percent, to 825.88, and the Nasdaq composite index fell 31.42, or 2.08 percent, to 1,476.42.

The Russell 2000 index of smaller companies fell 9.71, or 2.14 percent, to 443.53.

Declining issues outnumbered advancers by 3 to 1 on the New York Stock Exchange, where volume came to 1.51 billion shares.

Volatility has been high this week, with the market zigzagging on a mix of earnings and economic news as investors try to determine what the rest of 2009 will bring.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.85 percent from 2.87 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged from late Thursday at 0.23 percent.

The dollar was mixed against other major currencies. Gold prices soared.

Light, sweet crude for March delivery rose 24 cents to settle at $41.68 a barrel on the New York Mercantile Exchange.