* Financials lead mkt lower on renewed credit worries
* Writedowns seen at Lehman Brothers, AIG stock view cut
* Higher-than-expected July inflation weighs on sentiment
* Dow off 1.1 pct, Nasdaq off 1.2 pct, S&P down 0.9 pct
(Updates to midday)
By Walter Brandimarte
NEW YORK, Aug 19 (Reuters) - U.S. stocks fell more than 1
percent on Tuesday as financial shares declined on renewed
credit worries and a report showed inflation is still a threat
to the economy, despite the economic slowdown.
Shares of financial companies were the biggest drag on the
Dow and the S&P 500, with Bank of America <BAK.N> and Wells
Fargo <WFC.N> sliding about 4 percent each and the KBW index
of bank stocks <.BKX> falling 4.1 percent.
Reminding investors that the effects of the housing slump
are still far from over, JPMorgan Securities forecast
investment bank Lehman Brothers <LEH.N> will take a further $4
billion of write-downs in the third quarter due to losses from
mortgage-related investments. []
Goldman Sachs added to the gloomy outlook as it downgraded
the price target for the stock of American International Group
Inc <AIG.N>, saying the potential for capital raisings and
rating downgrades is increasingly likely for the world's
largest insurer. []
"We are back to struggling again, in the financial sector
particularly," said William Stone, chief investment strategist
at PNC Financial in Philadelphia. "Underneath some of that is
just concern about the overall global economic slowdown."
The Dow Jones industrial average <> fell 130.35
points, or 1.14 percent, to 11,349.04, while the Standard &
Poor's 500 Index <.SPX> declined 12.01 points, or 0.94
percent, to 1,266.59, after earlier falling more than 1
percent to a session low at 1,263.53. The Nasdaq Composite
Index <> shed 29.30 points, or 1.21 percent, to
2,387.68.
A much higher-than-expected inflation reading for July
also scared some investors who fear the U.S. Federal Reserve
might be in an increasingly difficult position to maintain its
policy of low interest rates.
The government's Producer Price Index shot up at the
fastest annual rate in 27 years in July, while core producer
prices, excluding volatile food and energy prices, underwent
their fastest rise since November 2006. []
"Clearly, there is more resilience in the prices than we
thought and I think this is reflecting a pass-through from the
strength we had seen in commodity prices," said Anna Piretti,
senior economist with BNP Paribas in New York.
She said, however, that the weakness in domestic demand
should contain prices going forward.
"Consumers are not likely to make very large ticket
purchases when prospects in the labor market are weakening and
confidence remains very low."
FINANCIALS TUMBLE AGAIN
Shares of AIG plunged 7.3 percent to $20.02 after Goldman
Sachs cut its price target on the stock to $23 from $30, while
Lehman Brothers lost 9.9 percent to $13.55 on negative
forecast by JP Morgan Securities.
Bank of America's shares fell 4.3 percent to $28.02 and
Wells Fargo shed 3.9 percent to $27.68.
Shares of home builders also slid following a bleak report
on housing starts by the Commerce Department. For the month of
July, housing starts dropped 11 percent -- the lowest annual
rate in more than 17 years.
Shares of Pulte Homes <PHM.N> , the No. 3 U.S. home
builder, declined 2.5 percent to $12.22. The Dow Jones index
of home builders' shares <.DJUSHB> dropped 2.6 percent.
On Nasdaq, shares of Staples Inc <SPLS.O> tumbled 4.8
percent to $23.39 after the leading U.S. office supply chain
said tough market conditions hurt quarterly results.
(Additional reporting by Ellis Mnyandu; Editing by Jan
Paschal)
