U.S. Stocks Retreat, Led by Financials; Bear Stearns Tumbles

U.S. stocks fell for a third day to the lowest level since 2006, led by a plunge in financial shares, on speculation earnings estimates will prove to be too high as the economy slows and credit losses spread.

The decline in banks steepened as Bear Stearns Cos. tumbled the most since 1987 on concern the brokerage was facing financial difficulties, even after former Chief Executive Officer Alan Ace Greenberg said the speculation was ridiculous. Fannie Mae and Freddie Mac, the largest U.S. mortgage finance providers, both lost more than 11 percent on expectations they face increasing losses as the housing slump deepens.

The Standard & Poor's 500 Index declined 20 points, or 1.6 percent, to 1,273.37 and is down almost 19 percent from its Oct. 9 record. The Dow Jones Industrial Average lost 153.54, or 1.3 percent, to 11,740.15. The Nasdaq Composite Index decreased 43.15, or 2 percent, to 2,169.34. Five stocks fell for every one that rose on the New York Stock Exchange.

It's a painful time for investors, said Sam Rahman, the Boston-based head of U.S. equities at Baring Asset Management Inc., which manages $36 billion. Not only are the concerns of economic weakness more palpable, but you're getting continued concerns about the impact of the credit crisis.

All 10 industry groups in the S&P 500 dropped today on growing concern that the economy will slip into a recession after banks posted $188 billion in subprime-related losses and analysts forecast earnings for members of the index will decline this quarter and next. The benchmark for U.S. equities is approaching a so-called bear market, which is marked by a decline of at least 20 percent from a peak.