Stocks Break Two-days Of Gains As Financials Bear On Market

NEW YORK (MarketWatch) - U.S. stocks on Tuesday fell for the first session in three as investors worried over J.P. Morgan Chase & Co.'s disclosed $1.5 billion write-down of mortgage-related assets as well as crude's rise back above $114 a barrel.

"Today we're giving back a little bit here. We were over the 1,300-level on the S&P [500] yesterday, that was looked at as a pretty good sign," said Linda Duessel, equity strategist at Federated Investors. "How this story plays out really depends on whether the weakness in financials bleeds out to other sectors in the economy."

Snapping a two-day winning streak that had the blue-chip index up 350 points, the Dow Jones Industrial Average fell 114.64 points to 11,667.71, with 24 of its 30 components chalking up losses.

The S&P 500 declined 10.39 points to 1,294.92, while the Nasdaq Composite shed 14.09 points to stand at 2,425.86.

Volume on the New York Stock Exchange hit 219 million shares, with declining stocks outgunning those advancing 3 to 2. On the Nasdaq, nearly 179 million shares traded, and decliners topped advancers 7 to 5.

Weighing on the blue-chip index as well as the broader market was the late Monday disclosure by J.P. Morgan of $1.5 billion in housing market-related losses since July, only the latest illustration that the credit crisis remains an ongoing concern.

Other negative news from the banking sector included a second-quarter loss of more than $300 million by Swiss banking giant UBS AG , which is splitting its investment banking from its wealth management arms after nervous clients withdrew about $40 billion in cash during the quarter. .

The gloomy figures come on the same day as the scheduled expiration of Securities and Exchange Commission rules prohibiting short selling. The SEC is expected to propose a formal rule.

The issues plaguing financial shares have recently been offset by a decline in crude, which has revived hopes that less expensive energy costs would translate into improved consumer and business spending, brightening the outlook for corporate earnings.

But Tuesday, crude-oil futures were back on the rise after news of a temporary shutdown of the South Caucasus Pipeline transporting Azerbaijani natural gas through Georgia.

In electronic trade on Globex, crude oil for September delivery gained 48 cents to $114.93 a barrel, reversing an earlier decline in prices on word Russia had ordered an end to military operations in Georgia. .

Elsewhere, the Commerce Department's estimated that the U.S. trade gap narrowed by 4.1% to $56.8 billion in June on record exports and a decline in non-oil imports. .

"One good piece of news for today was the trade deficit came in much better than expected. Our exports were still very strong," said Duessel.

Shares of airlines including AMR Corp. gained after a positive J.P. Morgan note.

Russian stocks rallied on the declaration of the end of the Georgia fighting, with the RTS index surging 3.7%.

The FTSE 100 rose 0.3% in London while the Nikkei 225 ended 1% lower in Tokyo.

By Kate Gibson