Stocks Drop After Financials Post Big Losses

American stocks fell, sending financial shares to their biggest drop in eight years, on heightened concern that bank failures will spread.Washington Mutual Inc. posted the steepest retreat ever and National City Corp. tumbled to a 24-year low after last week’s collapse of IndyMac Bancorp Inc. spurred speculation that regional banks are short of capital. The companies said they’ve seen no unusual depositor activity. Fannie Mae and Freddie Mac erased an earlier rally fueled by Treasury Secretary Paulson’s plan to help rescue the largest American mortgage lenders.The declines pushed the Standard & Poor’s 500 Financials Index of 89 companies down 6.1%, its steepest plunge since April 2000. The S&P 500 slid 11.19 points, or 0.9%, to 1,228.3. The Dow Jones Industrial Average lost 45.35, or 0.4%, to 11,055.19. The Nasdaq Composite Index slipped 26.21, or 1.2%, to 2,212.87. More than two stocks dropped for each that rose on the New York Stock Exchange.“The factors that affected IndyMac are not isolated; while they’re probably more severe, the pressures are evident in other financials,” a Richmond, Va.-based senior investment strategist at Ridgeworth Capital Management, which oversees about $74 billion, Alan Gayle, said. The Treasury’s plan for Fannie Mae and Freddie Mac is “encouraging, but it does suggest that credit availability is going to remain somewhat impaired and borrowing costs will likely be higher.”Benchmark indexes rallied more than 1% each at the open as confidence in the banking system was boosted by Mr. Paulson’s plan to ask Congress for authority to buy unlimited stakes in Fannie Mae and Freddie Mac and provide loans to them. Fannie and Freddie erased their advance after investor Jim Rogers said in a Bloomberg Television interview that the government’s proposal was an “unmitigated disaster” and Goldman Sachs Group Inc. predicted the shares would resume falling.The S&P 500 fell to the lowest level since June 2006, extending its drop from an October record to almost 22%. Record fuel prices and more than $400 billion of writedowns and credit losses globally stemming from the American housing market collapse have dimmed the outlook for corporate profits.

Stocks Drop After Financials Post Big Losses

Stocks Drop After Financials Post Big Losses

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