WASHINGTON — Federal Reserve Chairman Ben Bernanke yesterday warned that the economic slowdown is growing worse.

He called for greater regulation to prevent future crises like the one now menacing the nation.

Stocks on all three major indices plunged yesterday as new data confirmed a deep and wide national economic retreat.

The Dow Jones Industrial Average closed down 733.08 points, or 7.8 percent, to 8,577.91. The S&P 500 finished down 90.17 points, or 9.03 percent, to 907.84. The tech-heavy Nasdaq bled 150.68 points, or 8.47 percent, to 1,628.33. The second straight day of declines erased Monday's striking increases.

The Dow's loss of 733 points is the second-worst ever for the average, topped only by a 778-point decline Sept. 29.

In a speech to the Economic Club of New York that was followed by an unusual and frank question-and-answer session, Bernanke signaled that the U.S. economy is sure to get worse, hinted at further interest-rate cuts and implicitly criticized the economic-rescue plans that both major presidential candidates are touting.

Later, the Fed released its Beige Book, a report from its 12 district banks on economic conditions around the country. All 12 reported worsening conditions, yet another indicator that the economy appears to be in recession.

"Consumer spending was weak in nearly all districts. Consumers continued to pull back on big-ticket items, including autos. Several districts reported that reduced credit availability was restraining auto sales. Tourism was weaker, particularly lower domestic travel," Brian Bethune, an economist with the forecaster Global Insight, said in a research note on the Beige Book.

"Manufacturing activity moved lower in most districts, and there were greater concerns about the economic outlook. Autos and building materials continued to report weak demand conditions, and hurricanes disrupted oil and gas production," Bethune reported.

President Bush plans to speak on the financial crisis early tomorrow — before the markets open — at the U.S. Chamber of Commerce headquarters across from the White House. Officials said the speech wasn't intended to put forward new policy actions, but the president would instead give a more detailed explanation of what the government is doing — and why — to combat the crisis.

RETAILING SLUMPS

Earlier yesterday, the Commerce Department reported that retail sales fell 1.2 percent in September. That was almost twice the consensus expectation and another clear sign, along with big September job losses, that the economy skidded to a halt as the global financial crisis worsened last month.

Bernanke's speech focused on the economic outlook. He suggested that U.S. exports, which had helped keep growth going for much of the year, now are poised to fall as a global slowdown unfolds.

He also hinted that last week's coordinated trans-Atlantic half-point reduction in interest rates left room to cut even further. The Fed's benchmark federal funds rate now stands at 1.5 percent.

Under questioning, Bernanke answered with candor unusual for a man whose job usually requires him to be vague in order to avoid spooking the markets.

Asked to compare today with the handling of the Great Depression, Bernanke, a scholar on the period, said that Franklin D. Roosevelt's New Deal fiscal stimulus failed to end the troubles. Roosevelt, however, didn't take office until three and a half years after the stock market crashed in 1929.

Implicit in that answer was this view: The stimulus spending suggested by Democratic presidential nominee Barack Obama or the tax cuts proposed by Republican candidate John McCain are unlikely to end the crisis.

"I think contemporary scholarship argues that, at least in the case of the United States, fiscal policy was not the critical element, unless you count World War II, which obviously mobilized the entire economy," Bernanke said.

A hard lesson being learned now, he said, is that monetary policy — the use of interest rates to accelerate or decelerate the economy's growth as well as the Fed's aggressive push to recapitalize banks with easy loans — has its limits.

"We reached a point ... where the situation required additional firepower," Bernanke said, referring to the $700 billion rescue plan that Congress authorized. He added that "monetary policy ultimately cannot always solve the problems, and you do sometimes need fiscal or financial intervention, and we're getting that currently."

Current law has tied the Fed's hands at times, Bernanke said. He cited last month's bankruptcy of investment bank Lehman Brothers. The Fed did everything possible to save Lehman, he said, but because it was an investment bank not subject to commercial banking laws, it couldn't qualify for the same kind of government rescue as Charlotte, N.C.-based national bank Wachovia, which sold itself to Wells Fargo this month after a silent run on it by fleeing depositors.

When Bear Stearns, another investment bank, fell on hard times in March, the Fed was able to broker its sale to J.P. Morgan Chase because Bear had adequate collateral to offer in exchange for Fed lending. There was no such collateral available with Lehman, he said.

'NOT ALLOWED TO FAIL'

"Lehman was not allowed to fail," Bernanke said, refuting suggestions by European leaders that he'd done just that.

Some analysts believe the economy jolted into reverse in the recently ended third quarter, while others predict it will shrink later this year or early next. The classic definition of a recession is back-to-back quarters of shrinking economic activity.

Two gloomy economic reports showed that the debate at this point is merely semantic.

The Fed's snapshot of business conditions around the nation, known as the Beige Book, showed economic activity weakening across all of the Fed's 12 regional districts. Consumer spending — more than two-thirds of economic activity — slumped in most parts of the country. Manufacturing also slowed in most areas.

As shoppers cut back, retail sales dropped sharply in September. The 1.2 percent decline was the biggest in three years. Retail sales have fallen for three months in a row, the first time that's happened since the government began keeping comparable records in 1992.

Analysts had expected only a 0.7 percent decline. As Americans watch their nest eggs shrink before their eyes on days like yesterday on Wall Street, there's little reason to expect they will shop with gusto anytime soon.

There was a dose of good news yesterday: Oil prices dipped below $75 a barrel for the first time in nearly 14 months, suggesting gas prices will keep falling. Oil prices have now plunged almost 50 percent since peaking at $147.27 in mid July.

The Associated Press contributed to this report.