Citigroup Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. led all 93 financial companies in the Standard & Poor's 500 Index lower after Merrill Lynch & Co. reduced its recommendation on the shares. Lennar Corp. and D.R. Horton Inc. sent homebuilders to the lowest level since May 2003.
The declines erased all of last week's gains. The S&P 500 decreased 34.43, or 2.4 percent, to 1,432.36, as 487 of its members fell. The Dow Jones Industrial Average lost 280.28, or 2.1 percent, to 13,041.85. The Nasdaq Composite Index slipped 60.61, or 2.4 percent, to 2,500.64.
The Conference Board reported today consumer confidence fell the most since 2005, while S&P/Case-Schiller said home values had the steepest tumble in at least five years in June. Financial shares have posted the biggest drop among 10 industry groups in the S&P 500 this year amid concern that higher borrowing costs sparked by subprime mortgage defaults will erode earnings from trading and debt underwriting.
``Our concern when we look out is with the U.S. consumer,'' said David Chalupnik, who helps manage about $100 billion as senior managing director at First American Funds in Minneapolis. ``Are the housing issues that we're seeing going to finally depress the U.S. consumer? That's the risk that we see.''
Broad Decline
All 10 industry groups in the S&P 500 fell as the index wiped out last week's 2.3 percent gain that was spurred by speculation the Federal Reserve will take steps to stem losses in credit markets.
More than 20 stocks dropped for every one that rose on the New York Stock Exchange, the broadest retreat since Feb. 27.
Stocks extended their decline today after minutes from the Fed's Aug. 7 policy meeting showed central bankers put aside concerns about the rising cost of credit because they weren't convinced a slowdown in inflation would last.
Markets in Europe and Asia retreated, led by financial companies on concern the subprime mortgage rout is spreading and will erode global economic growth. The Morgan Stanley Capital International World Index slipped 1.8 percent to 1,520.88.
Consumer confidence fell this month by the most since just after Hurricane Katrina two years ago. The New York-based Conference Board's index declined to 105 from 111.9 in July. Economists surveyed by Bloomberg News forecast the index would slip to 104 from an originally reported July reading of 112.6.
Property values in 20 metropolitan areas decreased 3.5 percent in June from a year earlier, according to S&P/Case- Shiller.
Fed Minutes
The minutes from the Fed's last Open Market Committee meeting don't include the Aug. 16 emergency video conference when officials revamped their policy statement and cut the rate the Fed charges banks on direct loans. The benchmark lending rate was kept unchanged.
Fed funds futures contracts today showed traders see a 36 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, up from 28 percent odds yesterday.
Citigroup, the largest U.S. bank, decreased $1.65 to $46.14. Lehman Brothers, the biggest underwriter of U.S. bonds backed by mortgages, dropped $3.47 to $54.28. Bear Stearns, the second- largest bond underwriter, slipped $3.78 to $108.42.
Brokerage Downgrade
Merrill Lynch downgraded the shares to ``neutral'' from ``buy.'' Forecasts for 2008 ``appear increasingly unrealistic,'' New York-based analysts Guy Moszkowski and Patrick Davitt wrote in a report published today. ``Slower debt, mergers and acquisitions and equity underwriting businesses seem inevitable.''
A gauge of financial shares in the S&P 500 dropped 3.2 percent as a group and contributed the most to the broader index's decline today. The measure is down 11 percent this year.
State Street Corp. and Bank of New York Mellon Corp. fell on concern the banks will be hurt by losses on loans to commercial- paper funds. State Street has $27.9 billion in credit lines to the funds, and Bank of New York has $4.05 billion, according to regulatory filings. Some of the funds, which invest money from commercial-paper sales in higher-yielding assets, haven't been able to refinance by selling new commercial paper.
State Street, the largest money manager for institutions, declined $2.72 to $61.16. Bank of New York lost $2.22 to $39.70.
``It's too early to actually be buying'' financial shares, said Peter Sorrentino, who helps oversee about $6.5 billion as senior portfolio manager at Huntington Asset Management in Cincinnati. ``We're going to get some more debt issues floating to the surface.''
Stock Volatility
The Chicago Board Options Exchange Volatility Index rose for a second day, gaining 16 percent to 26.30. Higher readings on the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect larger share-price swings in the next 30 days.
Lennar, the biggest U.S. homebuilder by sales, dropped $1.33 to $27.23. D.R. Horton, the second largest, lost 46 cents to $14.75.
Bed Bath & Beyond Inc. dropped $1.80 to $32.83. Merrill analysts said investors should sell shares of the largest U.S. home-furnishings retailer because of an ``uncertain demand environment'' amid the slump in U.S. housing.
Triad Guaranty Inc. plunged $6, or 24 percent, to $19 for its biggest drop since October 1998. The mortgage insurer drew down an $80 million credit line to preempt cash shortages as U.S. home loan defaults rise.
MGIC Investment Corp., the largest U.S. mortgage insurer, dropped $2.62 to $32.29, the lowest since March 2000.
`A Bit Precarious'
``You've got a housing situation that's a bit precarious,'' said Russ Koesterich, a portfolio manager at Barclays Global Investors in San Francisco, which oversees about $2 trillion. ``What people are focused on is whether the slowdown in housing actually drags the country into recession, and to me this is the biggest risk and biggest unknown.''
Tenet Healthcare Corp. fell to the lowest since Bloomberg started keeping track in July 1980 after Credit Suisse Group said the second-biggest U.S. hospital chain may have to file for bankruptcy in three years. The shares dropped 34 cents to $3.34.
Energy stocks in the S&P 500 dropped 2.5 percent as a group after prices for crude oil, gasoline and heating oil fell in New York.
Exxon Mobil Corp., the world's biggest energy company, declined $2.12 to $83. Chevron Corp., the second-largest U.S. oil producer, lost $2.70 to $84.30.
Wendy's International Inc. added 70 cents to $32.69. Billionaire investor Nelson Peltz entered into a confidentiality agreement with the U.S. hamburger chain as he considers making an offer. Peltz's Triarc Cos. and Trian Fund Management LP, which own a 9.8 percent stake in Wendy's, entered into the agreement yesterday, according to a U.S. regulatory filing made today.
PolyMedica Jumps
PolyMedica Corp. jumped $6.40 to $51.69 after Medco Health Solutions Inc., the biggest U.S. manager of drug benefits, said it will buy the company for $1.5 billion to expand care for Americans with diabetes. The cash transaction is valued at $53 a share, the companies said.
In other markets, the yen advanced the most in almost two weeks against the dollar on speculation banks will report more credit-market losses, prompting traders to pare higher-yielding investments funded by loans in Japan.
Treasury bills rose for the first time in six days.
U.S. stocks fell yesterday after a report showed the glut of unsold homes rose to a 16-year high. Financial stocks contributed the most to the drop in the S&P 500 after Lehman said there may be ``extraordinary weakness'' in the market for loans held by Countrywide Financial Corp., the biggest U.S. home lender.
The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, lost 2.7 percent to 767.83. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 2.3 percent to 14,425.63. Based on its decline, the value of stocks decreased by $429.6 billion.
Bank of New York Mellon Corp. (BK US)
Bear Stearns Cos. (BSC US)
Bed Bath & Beyond Inc. (BBBY US)
Chevron Corp. (CVX US)
Citigroup Inc. (C US)
Exxon Mobil Corp. (XOM US)
Lehman Brothers Holdings Inc. (LEH US)
Lennar Corp. (LEN US)
D.R. Horton Inc. (DHI US)
Merrill Lynch & Co. (MER US)
MGIC Investment Corp. (MTG US)
PolyMedica Corp. (PLMD US)
State Street Corp. (STT US)
Tenet Healthcare Corp. (THC US)
Triad Guaranty Inc. (TGIC US)
Wendy's International Inc. (WEN US)
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