Banks drag US stocks lower

Banks led US stocks lower on Thursday as investors fretted a widening foreclosure crisis could undermine the market's strength over the last five weeks. The S&P 500 has rallied 11.9 percent since September 1 and volume has picked up from anemic levels. But the rally could weaken as an index of bank stocks fell nearly 3 percent on Thursday over growing fears the foreclosure problems could bleed into the broader credit markets and the economy.
"As we all know, the market hates uncertainty and this is a big one. Remember the subprime mess?," said Joe Saluzzi, co-head of trading at Themis Trading in Chatham, New Jersey. But the technology sector continued to show strength, with Google Inc up more than 9 percent in extended trading after beating Wall Street's expectations. Chipmaker Advanced Micro Devices Inc jumped more than 7 percent after hours on the back of another profit beat.
During the regular session, J.P. Morgan Chase & Co lost 2.8 percent to $38.72 and Bank of America fell 5.2 percent to $12.60, while the KBW bank index dropped 2.6 percent. All 50 US states are investigating the mortgage industry, and investors are growing concerned it will hurt bank earnings.
Fears about lenders' strength could be seen earlier in the week in credit derivatives, as the cost of insuring bank debt against default has jumped. The Dow Jones industrial average dipped 1.51 points, or 0.01 percent, to 11,094.57. The Standard & Poor's 500 dropped 4.29 points, or 0.36 percent, to 1,173.81. The Nasdaq Composite shed 5.85 points, or 0.24 percent, to 2,435.38. To be sure, some say the foreclosure issues, which have been brewing for weeks, were being used as an excuse for investors to pull back from the solid gains since the beginning of September.
The pickup in the last hour of trading, which erased most of the Dow's loss, could be evidence of that. "You could use the bank story as an excuse, but after the run-up we've had, the market needs a pullback," said Jeffrey Frankel, president of Stuart Frankel & Co in New York. "This is healthy, not a bad situation."
About 9.04 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, above this year's daily average of 8.78 billion. Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 2, while on the Nasdaq, about seven stocks fell for every six that rose.
Apollo Group's shares plunged, dragging the stocks of for-profit education companies down to six-week lows after the sector bellwether withdrew its 2011 outlook and forecast sharp drops in new student enrolments. Apollo shares sank 23.2 percent to $38 and led declines in the Nasdaq 100.