The U.S. economy suffered its deepest contraction since early 1982 in the fourth quarter, shrinking at a much worse-than-expected 6.2 percent annual rate as exports plunged and consumers slashed spending.

A month ago, the Commerce Department had estimated the economy shrank at a 3.8 percent pace in the October-December quarter. But downward revisions to inventories, exports and spending led it to issue a much weaker figure on Friday.

It's just doom all over. There's nothing good to take away from this report. I think there's a few more bad quarters to come, said Boris Schlossberg, director of currency research at GFT Forex in New York.

The grim data shocked Wall Street, which had braced for a downward revision, but not one nearly so deep. The consensus was for a decline of 5.4 percent.

U.S. stocks fell, with the Standard & Poor's 500 Index hitting a fresh bear market low, weighed down by the data and news the government could take a large common equity share in troubled financial firm Citigroup. Government bond prices rallied.

A separate report showed mounting job losses turned consumers gloomier in February, evidence the U.S. recession continues to deepen. The final Reuters/University of Michigan consumer sentiment index fell to 56.3 from January's 61.2.

CONSUMER SPENDING FALTERS, EXPORTS PLUNGE

The Commerce Department said consumer spending, which accounts for more than two-thirds of domestic economic activity, dropped at a 4.3 percent rate in the fourth quarter, the biggest decline since the second quarter of 1980.

That sliced 3.01 percentage points from GDP. Last month, consumer spending was estimated down at a 3.5 percent pace.

Households are bearing the brunt of the 14-month downturn, triggered by the collapse of the U.S. housing market and a resulting global credit crisis as companies have slashed payrolls.

Exports, until recently one of the few pillars supporting the distressed economy, tumbled at a 23.6 percent annual rate, the steepest plunge since 1971. That was revised downward from the 19.7 percent drop estimated in last month's report.

Inventories, which minimized the fall in the first snapshot of GDP last month, when they were estimated as rising a surprising $6.2 billion, were revised to show a $19.9 billion decline in the fourth quarter.

Further highlighting the severity of the recession, business investment fell at a 21.1 percent rate, the largest drop since 1975, from a previously estimated 19.1 percent decline. That took away nearly 2.5 percentage points from overall GDP.

Companies are aggressively scaling back to cope with a slump in demand, but those actions are translating into further reductions in household incomes.

Analysts said while the fourth quarter would probably be the weakest period in the current downturn, prospects for the first three months of 2009 are also bleak, with data so far pointing to another deep contraction.

This still sets the stage for a 5 percent drop or more in the first quarter, which would mark the largest back-to-back decline since 1958, said Jennifer Lee, an economist at BMO Capital Markets in Toronto.

The government has intervened with a $787 billion package in spending and tax cuts to staunch the bleeding. There is guarded optimism the economy could turn around in the second half of this year.

Federal Reserve Chairman Ben Bernanke said early this week there was a reasonable prospect the recession could end in 2009 if efforts to restore credit flows were effective.

Separate reports showed business activity in the U.S. Midwest contracted in February, but not as sharply as feared, while in New York City, activity declined for a 13th consecutive month in February.

The deteriorating economy is dampening inflation pressures, with a price gauge in the GDP report diving at a record 5 percent rate in the fourth quarter. Excluding food and energy, prices rose at a 0.8 percent pace, the smallest advance since a matching increase in the third quarter of 1997.

(Additional reporting by Ros Krasny in Chicago and Burton Frierson in New York; Editing by Dan Grebler)

Michigan Inflation Citigroup