* Indexes drop 3 percent; All 30 Dow stocks lower
* Financials lead slide on outlook concerns
* Dec retail sales fall signals spending contraction
* For up-to-the-minute market news, click []
(Updates to late morning)
By Ellis Mnyandu
NEW YORK, Jan 14 (Reuters) - U.S. stocks tumbled on
Wednesday as investors feared more credit losses in the banking
sector, while bleak December retail sales compounded worries
about the toll on consumers from the deepening recession.
Citigroup <C.N>, down more than 15 percent to $4.98, was a
standout drag on the financial sector, while shares of JPMorgan
<JPM.N> and Bank of America <BAC.N> fell 5 percent and 3.5
percent respectively.
The fall in Citigroup, a Dow component, followed a deal by
the embattled bank to sell a controlling stake in its crown
jewel unit, the Smith Barney retail brokerage, to Morgan
Stanley <MS.N> for $2.7 billion. For more see [].
Analysts reckon the Smith Barney sale was a precursor to a
break-up of Citigroup and that the bank must be urgently
seeking to replenish capital due to mounting losses.
"You'd think the news on banks is baked in, but there's
still a lot of headwinds," said Rich Parker, head of trading,
Stanford Group, in New York.
"The write-downs are starting to really scare people
outside of the banking area as well. Is there a balance sheet
out there that you can really trust? By all indications, it
seems the recession is going to be a historically long one."
The Dow Jones industrial average <> slid 277.01 points,
or 3.28 percent, to 8,171.55. The Standard & Poor's 500 Index
<.SPX> tumbled 29.99 points, or 3.44 percent, to 841.80. The
Nasdaq Composite Index <> dropped 48.07 points, or 3.11
percent, to 1,498.39.
The sell-off marked another hindrance to the market's push
to recover from its November bear market low. The benchmark S&P
500 began 2009 up more than 20 percent from that low but is now
up about 11.5 percent. The S&P financial index <.GSPF> fell
nearly 6 percent.
Sales at U.S. retailers fell 2.7 percent in December,
government data showed on Wednesday, as a deteriorating
economic climate forced consumers to cut back on spending
during the key holiday period. [
Consumer spending accounts for about two-thirds of U.S.
economic activity and as such is a key pillar of corporate
profits. The S&P retail index <.RLX> declined 3.7 percent.
Investors also sold off shares of economic bellwethers
including big manufacturer Caterpillar Inc <CAT.N>, down 6
percent. On Nasdaq, shares of iPhone maker Apple Inc <AAPL.O>
led the slide, falling 2.4 percent to $85.64.
Even more unnerving to investors was a forecast by Morgan
Stanley analysts that HSBC <HSBA.L> <HBC.N>, Europe's biggest
bank, is likely to halve its dividend and may need to raise up
to $30 billion of capital. [ID:nLE245760]
Additionally, Germany's Deutsche Bank <DBKGn.DE> <DB.N>
posted a loss of about $6.4 billion for the last three months
of 2008, hitting markets in Europe. [].
JPMorgan is due to post quarterly results on Thursday after
it moved up its reporting date, followed by Citigroup on Friday
after it also moved up its results date.
Thomson Reuters data show expectations for JPMorgan have
crumbled: A month ago it was expected to earn 27 cents per
share in the fourth quarter. Two days ago that view was down to
5 cents. Before the bell, the view was a penny before special
items.
On Tuesday, Federal Reserve Chairman Ben Bernanke said more
steps were needed to stabilize banks, reviving the idea of
authorities sopping up toxic assets from banks' books.
(Editing by James Dalgleish)
