Stocks headed for a sharp slide at Friday's open as news the U.S. government was taking a large common equity stake in embattled lender Citigroup sowed more uncertainty over the fate of major banks.

Additionally, government data showed that the recession deepened in the fourth quarter, with the economy shrinking at an annual rate of 6.2 percent, worse than initially estimated.

The fourth quarter was much weaker than expected and the first quarter won't be much better, said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto, Canada. I think people will be watching the 750 level (on the S&P 500) to see if it holds.

S&P 500 futures fell 17.00 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures tumbled 138 points, and Nasdaq 100 futures lost 17.25 points.

The slide in stock index futures suggested that the benchmark S&P 500 <.SPX> could open below its November 21 bear market low, falling to levels last seen in 1997.

Early Friday, the U.S. Treasury said it would convert dollar-for-dollar its $25 billion worth of preferred shares in Citigroup to match conversions by private preferred holders in a bid to strengthen the ailing lender's capital base. The conversion, however, does not involve pumping more government cash into the bank.

Investors fretted over which other banks might see similar action as Washington grapples to stabilize the banking sector and worries persist about dilution of current shareholders.

Shares of Citigroup dropped 43 percent to $1.40 before the bell, while shares of Bank of America shed 18 percent to $4.38. JPMorgan was down 5.1 percent at $21.88.

(Additional reporting by Ryan Vlastelica; Editing by James Dalgleish)

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