Stocks Slide as Bank Worries Rattle Market

Stocks closed lower Tuesday as a warning from Goldman Sachs that banks may need to raise another $65 billion rippled through the market, offsetting any positive impact from Goldman's earnings.

The Dow Jones Industrial Average shed 108.78, or 0.9 percent, to end the day at 12160.30. The S&P 500 fell 0.7 percent, after four straight gains. The Nasdaq also dropped 0.7 percent, snapping a three-day winning streak.

Goldman slashed its price targets and earnings forecasts for a slew of banks, projecting that the credit crisis won't peak until next year. And that extra capital will dilute value for shareholders.

The market's slump is due in part to the fact that it "has shrugged off some pretty awful-looking economic data that's coming home to roost," Art Cashin, floor manager for UBS, told CNBC. Plus, any hope that Goldman, which isn't as exposed to subprime as some of its peers, would lead the pack to safety, were dashed with the downgrade.

"Looks like the financial rebound was a one-day wonder and that's getting people worrying," Cashin said.

Financials, which led the prior session's rally, were the biggest decliner among 10 key S&P sector indexes. American Express , AIG , and Bank of America were also the top three decliners on the Dow.

Earlier, Goldman reported its profit slipped 11 percent to $2.09 billion, or $4.58 a share, due to turmoil in financial markets but the results blew past expectations. Revenue fell 7 percent to $9.42 billion but also beat expectations.

Morgan Stanley shares lost 4 percent ahead of the firm's earnings, due out before the bell Wednesday.

Stocks had gotten a quick pop at the open from Goldman earnings, as well as news that core producer-price inflation was in-line with forecasts. Reports in the Wall Street Journal and Financial Times that market chatter about the Fed raising rates has been overblown. also helped, but gains quickly fizzled.

(Can the dollar handle a Fed on hold? Click on the video at left.)

Technology stocks, also one of Monday's stars, retreated. Chips were off 1.5 percent, as were some big tech names including Dell Computer and Sun Microsystems .

Adobe Systems surprised markets with better-than-expected results but the software maker's revenue forecast came as a bit of a disappointment. Shares fell 3.4 percent.

Oil finished off its earlier lows, settling at $133.84 a barrel.

Not suprisingly, oil stocks were among the only stocks with buoyancy today. ExxonMobil and Chevron were the top two gainers on the Dow.

Airline stocks, however, gained 2 percent, with JetBlue up more than 5 percent and Delta up more than 3 percent.

On the home front, housing starts dropped 3.3 percentand applications for building permits fell 1.3 percent in May, the National Association of Home Builders reported. Both gauges came in as expected.

Still, housing stocks slipped, with Centex , DH Horton and KB Home all off more than 1 percent.

In other economic news, the U.S. current account deficit widened by a larger-than-expected margin in the first quarter to $176.4 billion from a downwardly revised $167.2 billion in the fourth quarter, the Commerce Department reported. U.S. industrial production fell unexpectedly by 0.2 percent in May, according to the Federal Reserve.

Consumer-electronics retailer Best Buy posted a lower but better-than-expected quarterly profitTuesday, citing market-share gains in televisions, computers and video gaming, and backed its full-year outlook. Still, there's a lot of cynicism that pinched consumers won't be spending much on electronics and the stock tumbled 5.3 percent.

Still to Come:

WEDNESDAY: MBA mortgage applications survey; oil inventories; Fed's Yellen speaks; Morgan Stanley, FedEx earnings
THURSDAY: Jobless claims; Philly Fed survey; leading indicators; natural gas inventories; Fed advisory panel meets to discuss credit-card regulation

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