* Major indexes lower, weighed by financials
* Regional banks hit hardest by Goldman downgrade
* Midwestern floods soften transport stocks
(Updates to mid-afternoon)
By Walker Simon
NEW YORK, June 17 (Reuters) - U.S. stocks fell on Tuesday
on a warning from a major brokerage that U.S. banks would have
to raise as much as $65 billion in capital to shore up balance
sheets weakened by the mortgage crisis.
Raising capital could dilute the equity stakes of current
shareholders, and shares of U.S. banks sold off across the
board. The KBW <.BKX> bank index, which encompasses U.S. banks,
fell 2.3 percent.
Adding to the bearish tone of the market were concerns
about the impact of Midwestern floods, with railroad operators
including Union Pacific Corp <UNP.N>, among the worst-hit
shares.
Shares of Bank of America <BAC.N>, whose target price was
cut by Goldman, tumbled 2.9 percent, and were the biggest drag
on the S&P 500. Along with the drop in bank shares, American
International Group <AIG.N>, the world's largest insurer, was
down almost 4 percent.
"The market is unlikely to go higher without participation
from financial stocks. You have funding and write-down issues
with the financials," said Subodh Kumar, chief investment
strategist at Subodh Kumar & Associates in Toronto, Canada.
The Dow Jones industrial average <> was down 65.05
points, or 0.53 percent, at 12,204.03. The Standard & Poor's
500 Index <.SPX> was down 2.87 points, or 0.21 percent, at
1,357.27. The Nasdaq Composite Index <> was down 2.48
points, or 0.10 percent, at 2,472.30.
Goldman Sachs said the global credit crisis will not peak
until 2009 and lowered its price targets for 14 banking
companies. It also cut 2008 earnings-per-share forecasts for 11
banks.
The warning on the outlook for banks offset the market's
upbeat reaction to Goldman Sachs Group Inc's <GS.N> release of
its own quarterly earnings, which exceeded Wall Street
expectations even though they were down 11 percent from a year
earlier.
Adding to the bearish tone of the market were concerns
about the impact of Midwestern floods on companies ranging from
food manufacturers to retailers and railroad operators. The
flooding in the region, the worst in 15 years, has damaged
unknown miles of railroad track and bridges.
The flooding "is a concern that only continues to worsen
the situation from everything from crops to transportation to
Midwest retailers," said Michael James, senior trader at
Wedbush Morgan in Los Angeles.
Union Pacific Corp <UNP.N>, the No. 1 U.S. railroad, fell
4.5 percent to $72.67, and Burlington Northern Santa Fe <BNI.N>
fell 2.3 percent to $102.82.
Goldman in its warning on banks also lowered its price
targets on Wachovia Corp <WB.N>, down 5 percent to $17.22, and
on Washington Mutual <WM.N>, which fell 5.2 percent to $6.41.
Bank of America dropped 91 cents to $29.41, while AIG fell
$1.31 to $32.70.
On Nasdaq, shares of Adobe Systems <ADBE.O> dropped 2.6
percent to $41.75, a day after the design software maker
offered a revenue outlook that disappointed investors.
(Editing by Leslie Adler)
