Stocks Suffer After Latest Bank Warnings

Stocks moved lower off the market opening on a fresh round of bad news for financials and an economic sign that the US consumer was continuing to struggle.

Major indexes fell slightly as analysts issued downgrades for a handful of large Wall Street banks and oil edged higher.

Oil prices gained after the dollar declined amid a report showing that the US trade deficit narrowed in June, news that might normally be considered positive but in this case indicated that consumers were buying fewer imports because of economic troubles.

Analysts were watching financials for clues to gauge the strength of the recent stock market rally.

"I think slowly but surely we're getting to the bottom of the difficulties on the balance sheets," Robert Hardy, managing director at Labranche, said on CNBC. "Can the market do something without the financials? Most likely not."

That could foretell trouble for the market Tuesday. Banks tumbled across the board after the opening bell, with the worst damage coming to some of the sector's biggest names.

Goldman Sachs shares were among the biggest casualties after a downgrade from Deutsche Bank as well as Oppenheimer analyst Meredith Whitney, who cut the third-quarter share view to $2.15 from $3.54 and rated the stock "market perform."

JP Morgan incurred losses of about $1.5 billion for the quarter to date, as it continued to be hurt by wider credit spreads, lower levels of liquidity, as well as the disruption in the credit and mortgage markets. JPMorgan led Dow losers.

Citigroup also warned that Bank of America may cut its dividend later this year or early in 2009.

Get the "Trader's Edge" with UBS's Art Cashin in video at left.

And Wachovia increased its previously reported second-quarter loss to $9.11 billion to cover costs to settle a probe of auction-rate securities sales, and said it will cut more jobs as the housing market deteriorates.

The SEC rule on the restriction of shorting financial securities expires on Tuesday.

Also in the financial sector, UBS said it recorded net new money outflows of almost 44 billion Swiss francs ($41 billion) in the second quarter, compared with inflows of 34 billion francs a year earlier, and it racked up a further $5 billion in writedowns on investments. This took its total bill from the markets crisis to $42 billion.

Elsewhere, Dow component McDonald's saw its shares slip on a downgrade from UBS.

Airlines were among the few sectors performing well, with Delta leading the group. The Dow Jones Airline index gained 1.4 percent early. The Platinum and Precious Metals index was up more than 4 percent.

Asian stocks closed broadly lower and European shares were trading in the red as well in morning trading.

Russian President Dmitry Medvedev ordered a halt to military operations in Georgia after five days of fighting and just before French President Nicolas Sarkozy was to hold peace talks in Moscow.

© 2009 CNBC.com