NEW YORK — As the term "staycation" gained traction in the American lexicon, hotel stocks plunged in 2008 as both consumers and businesses cut back on travel spending.

Demand for hotel rooms weakened in the spring and summer as soaring gas prices, the housing market crisis and broader worries about the economy helped make the "staycation" — a vacation spent at home — a new trend for anxious Americans.

The outlook for major hotel companies such as Starwood Hotels & Resorts Worldwide Inc. and Wyndham Worldwide Corp. worsened in September as turmoil in the financial markets prompted many businesses to slash travel spending and rattled consumers further.

"In September and October, things really fell off a cliff in terms of reservation bookings," said Patrick C. Scholes, an analyst with Friedman, Billings, Ramsey & Co.

As hotel occupancy dropped, so did lodging stocks. The Dow Jones U.S. Hotels Index plunged 58 percent in 2008, while the Dow Jones Total Market index lost 39 percent. The Standard & Poor's 500 Index, meanwhile, shed 39 percent.

Shares of hotel real estate investment trusts like Dallas-based Ashford Hospitality Trust Inc. and Irving, Texas-based Felcor Lodging Trust Inc., were hit hard as fears about the housing market downturn led investors to punish hotel owners. But even international hotel operators like Marriott International Inc. and InterContinental Hotels Group PLC, which is headquartered in the U.K., suffered steep stock declines of more than 40 percent.

"Nobody did well this year by any stretch of the imagination," said Robert A. LaFleur, an analyst with Susquehanna Financial Group.

Less expensive hotels fared better than those on the high end. Struggling companies shied away from luxury hotels, particularly after American International Group Inc. endured intense criticism for spending $440,000 on a lavish retreat for its top-producing life insurance agents days after the U.S. government gave it an $85 billion bailout loan. The weeklong event was held at the St. Regis Resort in California and included spa treatments, banquets and golf outings.

"It's very bad press right now if your corporation is getting a government handout and you're staying at a luxury hotel," Scholes said.

Hotel companies that focus on franchising also performed better than companies that actually own the hotel properties as troubles in the real estate market exacerbated worries. Shares of Hotel REITs Ashford Hospitality and Felcor Lodging Trust dropped more than 80 percent this year.

Bethesda, Md.-based Marriott, which owns very few of its hotels, fared somewhat better than Starwood, which was in the process of shedding real estate assets before the downturn. Marriott shares lost 43 percent, compared with shares of White Plains, N.Y.-based Starwood, which lost 59 percent.

Concerns about the real estate market and rising mortgage defaults also hurt companies with timeshare businesses, which sell shares in vacation properties to consumers to use at certain times during the year.

In December, Wyndham Worldwide said it would cut 4,000 jobs in its timeshare business and slash its development plans to avoid tapping the credit market next year. Wyndham's stock, one of the lodging sector's worst performers, lost 72 percent last year, even though the Parsippany, N.J.-based company reported that demand for its properties has held up and mortgage defaults have not spiked.

Marriott and Starwood, which have smaller timeshare segments, are also scaling back on sales and development.

One of the best performing stocks in the sector was Choice Hotels International Inc., which fell under 10 percent in 2008 compared with the much steeper drops of its rivals. The Silver Spring, Md.-based company's revenue stream is considered more reliable because — as a hotel franchisor — it takes in a relatively stable stream of franchise fees and requires less capital spending than hotel owners.

In recent weeks, industry analysts have further reduced their expectations for 2009 to reflect the steep drop in hotel demand and lower room rates, as hotels have started cutting prices to lure guests.

"There's really no way to sugarcoat it," LaFleur said. "It's going to be a very difficult year."