By Leah Schnurr

President-elect Barack Obama was immediately faced with gloomy economic news, including reports showing deep cuts in employment by private employers, possibly foreshadowing weakness in the government's employment report on Friday. Other data showed companies planned layoffs at the highest level in nearly five years.

Boeing Co was the biggest drag on the Dow, falling 7 percent, after more delays for its key 787 Dreamliner.

The concern over the depth and length of a slowdown underscored the massive task now facing Obama as he tries to lead the United States and the world out of its worst financial crisis since the 1930s.

"I think it's a bit of back to basics," said David Bianco, chief U.S. equity strategist at UBS in New York.

"Let's continue to follow the economy, what's going on with commodity prices, what's going on with interest rates and credit availability."

The Dow Jones industrial average fell 265.63 points, or 2.76 percent, to 9,359.65. The Standard & Poor's 500 Index lost 28.28 points, or 2.81 percent, to 977.47. The Nasdaq Composite Index gave up 52.56 points, or 2.95 percent, at 1,727.56.

The day's declines came on the heels of Tuesday's more than 3 percent rally, the biggest Election Day advance ever. But stocks remain at multi-year lows after being battered by worries over the economic picture, fallout from the credit crunch and the effect of corporate profits.

United Technologies Corp gave up 4 percent to $54.98 after the diversified manufacturer said it stood by its 2008 profit forecast, though the strengthening dollar could put results near the low end of the range.

Boeing was down 7.1 percent at $49.44 the day after it said the first flight of its Dreamliner would be postponed until next year, rather than the target of the end of this year due to the recent machinists' strike.

Exxon Mobil gave up 2.7 percent at $75.44 as the price of oil slid more than $4 to $65.77 a barrel after a government report showed demand is slowing in the United States, the world's top energy consumer. An S&P index of energy shares fell more than 3 percent.

Steelmakers Nucor Corp and U.S. Steel Corp fell after ArcelorMittal, the world's largest steelmaker, forecast a weaker fourth quarter, slashed output and froze growth plans.

Nucor was down 4.9 percent at $37.70, while U.S. Steel tumbled 4.4 percent to $39.35.

A report from ADP Employer Services said showed private employers made their deepest job cuts in six years last month and companies' planned layoffs surged to their highest in nearly five years. The Institute for Supply Management said the service sector contracted sharply as the worst financial crisis in 80 years hammered the world's largest economy.

On the Nasdaq, Cisco Systems was down 3.1 percent at $17.76 ahead of quarterly results expected after the bell.

(Editing by Kenneth Barry)