(Updates with GM and trading volumes)
* Fannie, Freddie rescue plan fails to boost optimism
* Regional banks slip after IndyMac takeover by
regulators
* Defensive stocks such as McDonald's cushion Dow
* S&P financials sub-index at lowest level since Oct 1998
By Walter Brandimarte
NEW YORK, July 14 (Reuters) - U.S. stocks fell on Monday
as worry about the health of the U.S. banking sector after
Friday's collapse of IndyMac outweighed earlier optimism over
the government's plan to stabilize Fannie Mae <FNM.N> and
Freddie Mac <FRE.N>.
On Sunday, the U.S. Treasury and the Federal Reserve said
they would lend money and buy equity if needed to rescue the
two pillars of the U.S. housing market, sending shares soaring
early on Monday. For details, see []
But the gains soon fizzled as analysts noted any direct
government investment in Fannie Mae and Freddie Mac would
further dilute existing shares -- the last thing investors
want.
Regional banks were also under fire as investors fretted
about the possibilty of more bank failures after regulators
seized the mortgage lender IndyMac Bancorp Inc <IMB.N> late
Friday, following withdrawals by panicked clients.
[]
National City Corp <NCC.N>, responding to market rumors,
said in a statement it was "experiencing no usual depositor or
credit activity." But the Midwestern banking institution's
stock still plunged 14.71 percent to $3.77 after the
statement.
Shares of other regional banks such as Washington Mutual
<WM.N> and M&T Bank Corp <MTB.N> also plummeted, with
Washington Mutual down 34.8 percent at $3.23, and M&T Bank
down 15.6 percent at $58.82. The S&P financials sub-index
<.GSPF> fell 5 percent to 239.22, its lowest level since
October 1998.
"Bottom line is the market is in no mood to give anyone
any benefit of the doubt right now," said Peter Kenny,
managing director at Knight Equity Markets in Jersey City, New
Jersey.
Kenny pointed to the long-term impact of Fannie Mae's and
Freddie Mac's poor performance as the key drivers of investor
uncertainty.
"I mean, it's nice to know that the government is willing
to take unorthodox steps to calm the markets and to infuse
confidence on the part of the investors, but this is a long
road ahead of us here," he said.
The Dow Jones industrial average <> fell 45.35 points,
or 0.41 percent, to 11,055.19, while the Standard & Poor's 500
Index <.SPX> lost 11.19 points, or 0.90 percent, to 1,228.30.
The Nasdaq Composite Index <> slipped 26.21 points, or
1.17 percent, to 2,212.87.
After the closing bell, General Motors <GM.N> shares rose
as much as 5 percent on news that Chief Executive Rick
Wagoner will announce the automaker's second restructuring
package in six weeks, in an attempt to cut costs and shore up
investor confidence in the company. GM closed at $9.38, down
5.4 percent on the NYSE.
In the regular session, the Dow's drop was cushioned by
the performance of defensive stocks like McDonald's <MCD.N>
and Coca-Cola <KO.N>, which tend to weather economic downturns
because consumers still buy their products even in tough
times.
McDonald's shares rose 1.3 percent to $58.09, while
Coca-Cola gained 1.4 percent to $50.96 on the New York Stock
Exchange.
Apple shares <AAPL.O> gained 0.8 percent to $173.88 on
Nasdaq after the company said it sold 1 million units of the
new iPhone in its initial weekend, in line with analysts'
estimates.
On the other hand, shares of Fannie Mae fell 5.1 percent
to $9.73, while those of Freddie Mac slid 8.3 percent to
$7.11, both in NYSE trading. Both stocks had risen more than
20 percent in trading before the opening bell.
Among regional banks, Fifth Third Bancorp <FITB.O> tumbled
10.6 percent to $11.16 on the Nasdaq.
In other news, activist shareholder Carl Icahn blasted
Yahoo Inc <YHOO.O> on Monday for rejecting his joint proposal
with Microsoft Corp <MSFT.O>, saying management was more
focused on who would run the Internet company than on the
details of the offer.
Shares of Yahoo fell 4.2 percent to $22.57 and Microsoft
shares dipped 0.4 percent to $25.15, both on the Nasdaq.
Trading volume was low on the New York Stock Exchange,
with about 1.41 billion shares changing hands, below last
year's estimated daily average of roughly 1.90 billion, while
on Nasdaq, about 2.07 billion shares traded, below last year's
daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by
3 to 1, while on the Nasdaq, more than two stocks fell for
every one that rose.
(Editing by Jan Paschal)
