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Dow Breaches Key Level Amid Bank Worries

Stocks declined Wednesday, led by financials, after worrisome results from Morgan Stanley and a dismal outlook from FedEx.

The Dow Jones Industrial Average was off about 100 points heading into the last half hour of trading. The blue-chip index briefly slipped below 12,000 -- the first time that's happened since March 18, when the market was reeling from the collapse of Bear Stearns.

rose $2.67 a barrel to settle at $136.68 a barrel after the EIA reported that crude inventories shrunk by 1.2 million barrels last week, less than the 1.5 billion draw expected.

But stocks aren't see-sawing with the rise and fall of oil anymore. The market's more pressing concern is that the worst isn't over for banks and brokerages.

Morgan Stanley reported its profit plunged 56 percentdespite $1.43 billion of pretax gains from asset sales. Revenue dropped in nearly every business. The results from the second-largest U.S. investment bank beat expectations but investors still hammered the stock -- and the banking sector -- amid concerns about the future.

The report is the third in this week's brokerage trilogy: Lehman Brothers on Monday reported a disappointing $2.8 billion loss. On Tuesday, Goldman Sachs , which has fared better than some of its rivals due to less exposure to the subprime mess, said its profit dropped 11 percent but beat expectations.

Lehman is still on the hot seat -- and the temperature is rising -- as the firm has come under increasing pressureto either put itself up for sale or dramatically slash its workforce.

(CNBC's Charlie Gasparino reports on the latest rumblings at Lehman Brothers. Click on the video at left.)

Lehman CEO Richard Fuld jumped up Wednesday, saying the firm is not for sale and isn't mulling any such move.

Financials had rallied on Monday but it all went downhill from there as the earnings started pouring in and after Goldman slashed its price targets and earnings forecasts for a slew of banks, saying it doesn't expect the credit crisis to peak until next year.

It's not just the brokerages -- regional banks are also feeling the pain.

Fifth Third Bancorp shares skidded after the regional bank announced that it would cut its dividend by 66 percentand raise additional capital.

Other regional banks also declined, including SunTrust and Regions Financial .

Shares of MF Global plunged, losing more than third of their value, after the options broker on Tuesday projected a sharp drop in revenue and said it would raise another $300 million in fresh capital to pay off debt.

FedEx posted a loss that missed earnings estimatesand said that the environment for the next year would be difficult.

FedEx earnings are closely watched as a gauge of the economy as the packages it delivers represent sales from a wide variety of sectors.

General Motors led Dow decliners after CarMax, the nation's largest used-car retailer, said its earnings dropped 55 percent as wholesale prices for trucks and SUVs tumbled 25 percent-- about four times the normal rate -- in the quarter ended in May.

CarMax said the drop in truck prices was the worst in any segment in its 15-year history and suspended its prior guidance for the fiscal year.

CarMax shares dropped 13 percent.

Pfizer was the top gainer on the Dow after the world's largest drug maker reached a settlement with India's Ranbaxy Laboratories that will allow Ranbaxy to begin selling a generic form of Pfizer's cholesterol buster Lipitor in 2011. In exchange, Ranbaxy has agreed to drop all patent litigation against Pfizer.

Boeing was the No. 2 gainer on the Dow after the Government Accountability Office upheld Boeing's protest of a $35 billion Air Force contract awarded to Northrop Grumman, saying the Air Force should re-open the bidding and reimburse Boeing for its expenses.

Microsoft announced that it had purchased Navic Networks, a closely held television-advertising-technology company, but terms of the deal were not disclosed.

Activist investor Olivant has raised its stake in Swiss bank UBSto 2.5 percent, saying it had fully supported the recent rights issue. Olivant, headed by former UBS chief executive Luqman Arnold, said in April it had taken a 1.1 percent stake and called on the bank to reform and consider splitting up.

The Royal Bank of Scotland warned a steep selloff in stockscould be coming as central banks find their hands tied by inflation, the Telegraph reported.

Still to Come:

WEDNESDAY: Fed's Yellen speaks
THURSDAY: Jobless claims; Philly Fed survey; leading indicators; natural gas inventories; Fed advisory panel meets to discuss credit-card regulation


Send comments to cindy.perman@nbcuni.com.