Stocks Decline, Led by Banks; AIG, Citi Fall

Stocks fell as investors paused after a broad rally last week and absorbed news about rekindled European debt worries.

TheDow Jones Industrial Averagewas down more than 65 points, with American Express, AIG , and Citigroup leading the blue-chips lower. Altria and Wal-Mart rose.

The S&P 500and the Nasdaqalso fell. The CBOE Volatility Index, the most widely followed gauge of fear in the market is up, above 23.

All key S&P sectors were lower, with financials, energy and consumer discretionary stocks leading the way.

The grimmer sentiment comes after a four-session winning weekwhen stocks surged after better-than-expected jobs and manufacturing data. Liquidity hasn't fully returned the market, however, as many people are back at work, said Tom Schrader, managing director for U.S. Equity trading at Stifel Nicolaus Capital Markets in Baltimore.

During the Labor Day break, President Barack Obama unveiled a $50 billion investment package to encourage job creation with projects for improving roads, railways and airport runways. Obama is expected to announce further measures during the week in a bid to boost confidence in the economic recovery ahead of the mid-term elections.

Banks are in focus Tuesday after The Wall Street Journal reported that the region's bank stress tests were not as comprehensive as they should have been.

But news that the Basel committee will require banks to hold 9 percent Tier 1 capital, up from 4 percent, may ease some concerns, the German weekly Die Ziet reported.

Also, Barclays said the head of its investment bank, Bob Diamond, would be its next chief executive.

And HSBC Holdings Chairman Stephen Green is stepping down to become U.K. Trade Minister of State for Trade and Investment, a post vacant since last May. Green's replacement has not been named.

AIG , meanwhile, hopes to raise about $15 billion for its Asian life insurance unit, and seeking approval from a Hong Kong committeeto list its initial public offering for sale on Sept. 21, Reuters reported. The move will allow AIG to repay taxpayers for propping up the insurance giant during the financial crisis.

Mining and minerals stocks are under pressure on news that authorities in China have asked several steel companies to suspend production for several days to ease energy use concerns in the country, said Schrader at Stifel Nicolaus.

"I'm not saying it's 100 percent due to the news in China, but a significant portion," he said. "The strong dollar is also hurting commodity plays."

Cliff Natural Resources and Camecoboth fell. Meanwhile, U.S. steelmakers benefited from the news. Nucor , U.S. Steel and AK Steelrose.

Meanwhile, Oracle led the S&P and Nasdaq, up more than 5 percent after it hired the former chief executive ofHewlett-Packard , Mark Hurd, to replace Charles Phillips.

And the U.S. Justice department is examining whether Google would have too much influence in online travel with the purchase of ITA Software, an airline ticketing software firm, The Wall Street Journal reported. Google bought ITA Software for $700 million in July.

Apple shares rose after slightly as the tech company said its new social music network, Ping, saw more than a million users in the two days after it launched last wednesday.

Applied Materials was down more than 2 percent after Barclays cut the company's price target to $10 per share from $14.

In merger news, Air Productsboosted its hostile, all-cash offerfor for Airgas to $65.50 a share, a $5.5 billion deal. On Sept. 15, Airgas will vote on 3 director slots up for election on 9-member board.

Schlumberger is down slightly after Goldman Sachs added the oil services firm to its buy list with a price target of $68.

Playboy Enterprises shares were lower after a special board committee said Tuesday it retained Raine Securities as a financial advisor and Kaye Scholer as a legal advisor to take the company private. Hefner bid to buy Playboy shares he does not own for $5.50 a share. The committee is weighing the bid.

On Tap Next Week:

TUESDAY: 3-year Treasury note auction.
WEDNESDAY: MBA mortgage applications, 10-year note auction, Fed Beige Book release, Fed's Kocherlakota speaks, consumer credit; Earnings from Smithfield Foods.
THURSDAY: New York Fashion Week begins, McDonald's August sales, weekly jobless claims, oil inventories, 30-year Treasury bond auction.
FRIDAY: Wholesale trade.

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