Wall Street stumbled on Monday after a joint venture between Kuwait and Dow Chemical fell through, threatening one of the larger merger deals of the year and adding to fears about a faltering global economy.

Dow shares tumbled to their lowest since 1991 after Kuwait decided to end a $17.4 billion petrochemical joint venture amid slumping petrochemical sales and the global financial crisis.

The news ignited worries that the largest U.S. chemical company would not be able to buy rival Rohm & Haas , which Dow agreed to acquire for about $15.3 billion in July. Rohm & Haas (ROH) shares fell as much as 25 percent.

These declines were also exacerbated by light volume, analysts said. Trading is expected to be light throughout the week, abbreviated by the New Year’s holiday on Thursday.

The increasingly anemic economic data and company news has prevented a hoped-for year-end rally.

What investors “are grappling with is how long and how deep of a recession this is going to be and when the sun is going to go up again,” said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

The Dow Jones industrial average was down 129.99 points, or 1.53 percent, at 8,385.56. The Standard & Poor’s 500 Index was down 14.10 points, or 1.62 percent, at 858.70. The Nasdaq Composite Index was down 34.94 points, or 2.28 percent, at 1,495.30.

The Nasdaq outpaced the other major indexes, dragged by large-cap tech companies including Research In Motion , which fell 4.7 percent to $38.94 and Microsoft Corp , which shed 1.8 percent to $18.79.

Dow Chemicals and Rohm & Haas were among the biggest losers by percent on the New York Stock Exchange. Dow was down nearly 20 percent to $15.18, while Rohm & Haas was off about 15 percent to $54.03.

The collapsed joint venture added to concerns about the chemicals industry, which has been struggling because of recessions in most developed countries and a sharp slowdown in emerging economies.

Economic worries overshadowed gains in the energy sector as oil climbed on concerns that crude supplies could be threatened by tensions between Israel and the Hamas-ruled Gaza Strip.

Oil prices rose to more than $38 a barrel as Israeli warplanes hit the Gaza Strip for a third day and Israel prepared to launch a possible invasion. The offensive has killed more than 300 Palestinians in the deadliest violence in the territory in decades.

Chevron and Exxon Mobil topped the Dow, while the S&P 500 index of energy stocks rose more than 1 percent. Chevron rose 1.3 percent to $71.28 and Exxon Mobil edged up 0.5 percent to $77.62.

Analysts noted the rise in energy prices did not bode well for cash-strapped consumers.

As 2008 winds to a close, investors are looking to the incoming White House administration to offer another stimulus package and help usher the country out of a year-long recession. The broad S&P 500 is down about 40 percent for the year, putting it behind 1931’s 47.1 percent record drop.

President-elect Barack Obama has said signing a major economic stimulus package will be his priority when he takes over the presidency on Jan. 20.

Over the weekend, one of Obama’s top economic advisors said financial policy should address both immediate job creation and longer-term investment needs.

Lawrence Summers, Obama’s pick to head the White House National Economic Council, said spending government money solely to stimulate consumer spending would be a short-sighted mistake.

Deepa Seetharaman  NEW YORK, Dec 29 (Reuters)