* Analysts' comments, downgrades hurt banking shares
* Inventory data dampens recovery hopes
* Fed kicks off two-day monetary policy meeting
* Stocks down; S&P 1.1 pct, Dow 0.8 pct, Nasdaq 1 pct
* For up-to-the-minute market news click []
(Updates to close)
By Chuck Mikolajczak
NEW YORK, Aug 11 (Reuters) - U.S. stocks fell on Tuesday
after a prominent banking analyst warned the sector's
fundamentals have yet to improve, and an unexpectedly large
drop in wholesale inventories raised worries about an economic
recovery.
Financial stocks, which had gained about 25 percent in the
last month, tumbled after Rochdale Securities analyst Richard
Bove painted a gloomy outlook for the banking industry. He said
bank stocks are trading on "fumes," and he expects a short-term
pull-back in their stock prices. For details, see
[].
The financial sector of the S&P 500 <.GSPF> shed 3.5
percent while the KBW Bank Index <.BKX> was down 4.4 percent.
The stocks were also affected by a report late Monday from the
Congressional Oversight Panel, which highlighted the risks of
toxic assets still on the books of many banks.
"Banks aren't out of the woods yet," said Kevin Kruszenski,
head of listed trading at KeyBanc Capital Markets in
Cleveland.
"There are some worries about additional equity that needs
to be raised. The market is going to have a hard time moving
meaningfully higher without them," Kruszenski said.
The drop in U.S. wholesale inventories in June, which was
nearly double expectations, suggests that businesses remained
skeptical about a return in demand. For details see:
[]
The Dow Jones industrial average <> closed down 96.28
points, or 1.03 percent, to 9,241.67. The Standard & Poor's 500
Index <.SPX> fell 12.77 points, or 1.27 percent, to 994.33. The
technology-laced Nasdaq Composite Index <> slid 22.51
points, or 1.13 percent, to 1,969.73.
Adding to losses for financials, Miller Tabak cut its price
targets on Zions Bancorp <ZION.O> and Regions Financial Corp
<RF.N>. Shares of Zions stumbled 8.4 percent to $16.43, while
Regions dropped 4.2 percent to $4.76.
The S&P Regional Banks sub-index <.GSPBNKS> slipped 4.2
percent.
The Congressional Oversight Panel, a watchdog for the
government's bailout program, said toxic loans and securities
continue to pose a threat to the financial system, particularly
for smaller banks that face mounting losses on commercial real
estate loans. []
Investors were also cautious as a two-day monetary policy
meeting by the U.S Federal Reserve got under way on Tuesday.
The focus will be on signs from the Fed of an exit strategy
from its quantitative easing policy. Also weighing was a report
on July retail sales, due Thursday.
Earnings reports are due this week from retailers Wal-Mart
Stores Inc <WMT.N>, J.C. Penney Co Inc <JCP.N> and Macy's Inc
<M.N>, which may provide some insight ono whether consumer
spending, which accounts for roughly two-thirds of the U.S.
economy, is stabilizing.
Another worrying sign of a still-weak economy came from
hedge fund firm Atticus Capital LLC, which told investors that
it is closing two of its three funds and would return $3
billion to shareholders. For details, []
The negative news overshadowed better-than-expected data on
U.S. non-farm productivity in the second quarter, which showed
worker productivity rose at its fastest pace in six years as
hours worked fell much more steeply than output.
Volume was light on the New York Stock Exchange, with 1.17
billion shares changing hands, below last year's estimated
daily average of 1.49 billion, while on the Nasdaq, about 1.91
billion shares traded, below last year's daily average of 2.28
billion.
Declining stocks outnumbered advancing ones on the NYSE by
a ratio of 2,226 to 801, and declining stocks beat advancers on
the Nasdaq, by about 1,931 to 719.
(Editing by Leslie Adler)
