(Updates to midday)
* Market falls as regional banks tumble for second day
* Morgan Stanley earnings hurt investment banks
* Grim outlook from FedEx adds to market's declines
* Oil prices drop after inventory data
By Deborah Jian Lee
NEW YORK, June 18 (Reuters) - U.S. stocks fell on
Wednesday as financial shares sold off after Morgan Stanley
said its earnings slid by more than half and Fifth Third
Bancorp slashed its dividend, raising fears that the effects
of the credit crisis are far from over.
Adding to the gloom, parcel delivery service FedEx Corp
<FDX.N>, which is closely watched by Wall Street as a proxy
for U.S. business activity, reported quarterly results and
gave a dismal outlook due to high fuel prices and a weak U.S.
economy.
Morgan Stanley's <MS.N> shares fell more than 4 percent
and the stocks of rival investment banks fell more than 1
percent after the company said trading losses and a slowdown
in investment banking hurt its results.
Fifth Third's <FITB.O> shares tumbled more than 14 percent
after the Midwestern bank said it will slash its dividend by
66 percent and raise at least $2 billion in capital to cope
with mounting credit losses.
Fifth Third's announcement triggered declines in a slew of
other regional banks. On Tuesday, regional banks suffered
steep declines after Goldman Sachs analysts warned 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.
"The two things people are worried about are the financial
system and the economy, and you've got bad news on both of
those today," said Jim Awad, chairman of W.P. Stewart Asset
Management in New York.
"You've got hangover from the financial stocks with Morgan
Stanley, combined with FedEx's negative comments on the
economy."
The Dow Jones industrial average <> dropped 86.71
points, or 0.71 percent, to 12,073.59. The Standard & Poor's
500 Index <.SPX> slid 8.99 points, or 0.67 percent, to
1,341.94. The Nasdaq Composite Index <> fell 19.90
points, or 0.81 percent, to 2,437.83.
A decline in crude oil prices helped indexes pull back up
from their worst levels by midday.
FedEx shares shed 2.6 percent to $82.05. Shares of rival
UPS <UPS.N> declined 1.6 percent to $66.26.
Shares of Morgan Stanley slid 4.3 percent to $38.86.
Merrill Lynch <MER.N> stock dropped 1.6 percent to $37.31 and
Lehman Brothers shares fell 3.4 percent to $24.28.
Fifth Third shares tumbled 14.9 percent to $10.84 on the
Nasdaq. Among other regional banks, SunTrust Banks <STI.N>
shares fell 7.1 percent to $37.73 and Regions Financial <RF.N>
lost 7.3 percent to $11.80, both on the New York Stock
Exchange.
The banking index <.BKX> was down 2.1 percent.
U.S. front-month crude <CLc1> dropped $1.41 to $132.60 a
barrel on the New York Mercantile Exchange.
(Editing by Jan Paschal)
