American stock indexes fell to three-month lows after Goldman, Sachs & Co. told investors to sell shares of Citigroup Inc. and Lowe’s Cos. cut its earnings forecast for the second time in two months.

Citigroup retreated to its lowest level in four years after Goldman said credit-market losses may cause the biggest bank in America to report $15 billion in writedowns over the next two quarters. Merrill Lynch & Co. and Morgan Stanley also slumped after Goldman cut its share-price estimate on both companies. Lowe’s, the second-largest home-improvement retailer, dropped the most since 2003 after the housing slump cut profits.

The S&P 500 lost 25.47, or 1.8%, to 1,433.27, its lowest close since August 28. The Dow Jones industrial average fell 218.35, or 1.7%, to 12,958.44, led by an 8.5% drop in General Motors Corp. The Nasdaq composite index decreased 43.86, or 1.7%, to 2,593.38. The Dow Jones transportation average slid 105.87, or 2.3%, to 4,457.97. Almost eight stocks dropped for every one that rose on the New York Stock Exchange. “Downgrades in the banking sector and issues with the retailers, all of these things are spooking the market right now,” the chief investment officer at PanAgora Asset Management in Boston, which manages $26 billion, Edgar Peters, said. “We have to wait a little bit to be sure that all the news is out” before buying shares of financial companies.”

The Dow transportation average declined for a fourth day to the lowest level since October 2006. Some investors who follow “Dow Theory” view the transportation gauge as a harbinger of economic trends and say a simultaneous decline in the Dow industrials below their August lows would signal a bear market for stocks. The Dow industrials closed today about 113 points above the 30-stock gauge’s August 16 level of 12,845.78.

Lowe’s lost $1.89, or 7.6%, to $23.12, its biggest drop since May 2003. Profit for the year ending February 1 will fall to $1.83 to $1.87 a share from $1.99 in fiscal 2007, Lowe’s said. Analysts estimated $1.94. The company also said quarterly profit declined 10% amid the worst American housing recession since 1991. Bigger rival Home Depot Inc. fell 88 cents to $28.19.

The report from Lowe’s added to concern that retail sales growth this holiday shopping season may be the worst in at least five years and signal a contraction in the broader economy. The number of economists forecasting America will slip into recession almost doubled over the last two months, a survey by the National Association for Business Economics showed.

Citigroup slid $2 to $32, its lowest price since March 2003. Goldman cut the largest American bank by assets to “sell” from “neutral” and reduced its 2008 earnings per share estimate to $3.80 from $4.65.

“Given the dislocations in the credit markets, we have become more pessimistic on the group’s outlook,” a New York-based analyst, William Tanona, wrote in a note to clients.