US stocks fell on Tuesday, after Washington Mutual Inc (WaMu) said it expects a large quarterly loss, raising concerns about results from the rest of the financial sector, while minutes from the Federal Reserve's latest meeting stoked fears of a recession.
Washington Mutual, the largest US savings and loan, also slashed its dividend even as it received a $7 billion capital infusion, and its shares tumbled 10 percent. Bank of America Corp and Citigroup Inc were among the heaviest drags on the S&P and the Dow.
Weakness on Wall Street left investors wondering whether a rebound in the financial sector since mid-March had staying power through next week when J.P. Morgan Chase, Merrill Lynch & Co Inc and Citi will report first-quarter results. "It basically rekindled fears we had three weeks ago that there are other shoes to drop in that group," said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.
Weak outlooks, meanwhile, from chip maker Advanced Micro Devices and semiconductor equipment maker Novellus Systems Inc fuelled concerns about business and consumer spending. The market extended its decline after minutes from the latest Fed policy meeting showed some of the central bankers saw the possibility of a "prolonged and severe economic downturn."
The Dow Jones industrial average was down 35.99 points, or 0.29 percent, finishing at 12,576.44. The Standard & Poor's 500 Index was down 7 points, or 0.51 percent, ending the day at 1,365.54. The Nasdaq Composite Index was down 16.07 points, or 0.68 percent, at 2,348.76.
The S&P financial index sank 1.68 percent. Broadly speaking, credit markets have stabilised and the S&P 500 has risen 6 percent since mid March when the Fed had backed J.P. Morgan Chase's take-over of Bear Stearns and stepped up its efforts to increase liquidity in Wall Street. However, economic data and quarterly results for companies such as AMD and aluminium producer Alcoa Inc continue to reflect uncertainty.
A report by the National Association of Realtors showed pending sales of previously owned homes in February fell to the lowest level on records going back to 2001. The Dow Jones home construction index fell 4.3 percent, the biggest daily decline in two weeks, as shares of home builders such as D.R. Horton Inc slid.
AMD, the second largest maker of computer processors, gave a first-quarter revenue estimate below expectations after Monday's market close and said it would cut 10 percent of its work force. Its stock fell 4.9 percent to $6.03. Shares of Novellus Systems fell 8.1 percent to $21.88 after it said first-quarter earnings would be lower than expected and revenue would be at the low end of its forecast range.
"Tech can't seem to get going," said Todd Leone, head of listed trading at Cowen & Co in New York. "The economy is a little weaker, there's talk of recession and some of the earnings numbers are a little weaker." Adding to the gloomy mood about the economy, United Parcel Service slashed its expectation for first-quarter earnings, citing the deteriorating US economy. UPS shares fell 2.1 percent to $71.75 after the bell.
The S&P 500 index began trading on Tuesday near its priciest level this year, about 14.05 times expected 12-month earnings. Trading volume was moderate on the New York Stock Exchange, with about 1.2 billion shares changing hands, above last year's estimated daily average of roughly 1.9 billion. On Nasdaq, about 1.6 billion shares traded, below last year's daily average of 2.17 billion. Declining stocks outnumbered advancing ones on the NYSE by 18 to 13 and decliners also beat advancers on the Nasdaq by about 17 to 12.