The economy lurched deeper into the doldrums Wednesday and took the stock market down with it, sending the Dow Jones industrials to a staggering 733-point loss and erasing any hopes that the convulsions that have shaken Wall Street for a month were over.

The daylong sell-off came as retailers reported the biggest drop in sales in three years and as a Federal Reserve snapshot showed Americans are spending less and manufacturing is slowing around the country.

Piling up losses in a rough final hour of trading, the Dow ended the day down nearly 8 percent – its steepest drop since one week after Black Monday in 1987. The Dow has wiped out all but about 127 points of its record-shattering 936-point gain on Monday of this week.

Gains lost

Earlier this week, after governments around the world announced plans to use trillions of dollars to prop up banks, including a U.S. plan to buy about $250 billion in bank stocks, the market had appeared to be turning around – or at least calming down.

Instead, relentless selling gave the Dow its 20th triple-digit swing in the past 23 trading sessions, an unprecedented run of volatility. The Dow has finished higher on only one day this month. The loss of 733 points is the second-worst ever for the average, topped only by a 778-point decline Sept. 29.

The plunge in stocks put the nation’s economic anxiety front-and-center as the two major presidential candidates, Sens. Barack Obama and John McCain, prepared for their final debate Wednesday night in Hempstead, N.Y.

In the meantime, the man they each hope to succeed met with his Cabinet. President Bush predicted “in the long run that this economy will come back.”

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke expressed confidence that the government’s radical efforts to stabilize the financial system and induce banks to lend again will eventually help the economy.

But Bernanke warned that even if the financial markets level off, the nation will not snap back to economic health quickly.

“Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,” Bernanke told the Economic Club of New York.

Paulson, making the rounds of network TV morning shows, struck a similar note. “This will take time. There will be challenges,” he said on ABC’s “Good Morning America.”

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 – which accounts for more than two-thirds of economic activity – slumped in most Fed regions. 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. And as Americans watch their nest eggs shrink before their eyes on days like Wednesday on Wall Street, there’s little reason to expect they will shop with gusto anytime soon.

Leaders of the world’s top economic powers, the Group of Eight, said they would meet “in the near future” for a global summit to tackle the financial crisis. The group comprises the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.

British Prime Minister Gordon Brown said the meeting could be held as soon as next month. He said the discussions should include not only the world’s richest nations but also major emerging economies such as China and India.

“I believe there is scope for agreement in the next few days that we will have an international meeting to take common action … for very large and very radical changes,” Brown told reporters before a meeting with other European Union leaders for talks in Brussels on the financial crisis.

German Chancellor Angela Merkel and French President Nicolas Sarkozy also called for a G-8 meeting.

Merkel said reform was needed so that “something like this can never happen again,” while Sarkozy said the meeting should be held in New York, “where everything started.”

The current financial crisis began more than a year ago in the United States when lax lending standards on certain home mortgages came home to roost. Foreclosures skyrocketed, mortgage securities soured and financial companies racked up huge losses.

Credit remained strained Wednesday, and investors’ appetite for super-safe investments stayed high. The three-month Treasury bill’s yield slipped. Low yields show that investors are willing to earn meager returns as long as their investment is preserved.

Key lending rates between banks in the U.S. and Europe only inched down after major central banks offered the banking sector unlimited amounts of short-term loans in dollars. The move was meant to keep credit markets flowing while lenders regain confidence.

There was a dose of good news Wednesday: 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.