U.S. Stocks Drop For 2nd Day On Financial Woes

NEW YORK (MarketWatch) -- U.S. stocks continued to head lower on Tuesday, as a spate of downgrades for financial firms fueled concerns about the credit market crisis, while updates from Nokia Corp. and Merck & Co. Inc. disappointed.

The Dow Jones Industrial Average was down 36 points at 13,277, as 18 of its 30 components traded in the red. The Dow earlier fell to a low of 13,237.

Financial stocks AIG , American Express Co. , Citigroup Inc. , and J.P. Morgan Chase & Co. led the blue-chips lower.

Merck & Co. , also a Dow component, saw its shares drop 2%. The drug maker backed its 2007 earnings target and said it expects adjusted profit for 2008 to be in a range of $3.28 to $3.38 a share. Analysts had been forecasting earnings of $3.39 for 2008.

Away from the Dow, Nokia shares dropped 3.2% after the handset maker predicted margins for the next few years would be about in line with market expectations.

The S&P 500 fell 8.3 points to 1,464 and the Nasdaq Composite fell 12.5 points to 2,624.

Among technology shares, Chinese internet firm Baidu.com Inc. rose 2.4% after news that its American depositary shares are part of the Nasdaq 100 as of Tuesday.

Trading volumes showed 241 million shares trading on the New York Stock Exchange and 430 million trading on the Nasdaq stock Exchange. Declining stocks topped gainers by 20 to 9 on the NYSE and by 17 to 8 on Nasdaq.

Financial under renewed pressure

Goldman Sachs cut its estimates of S&P 500 earnings for this year and next to take into account lower profits in the banking industry, according to Bloomberg.

In addition, Punk Ziegel cut its ratings on Goldman Sachs , Bear Stearns and Lehman Bros. to sell from market perform.

H&R Block Inc.'s shares lost 1% after it agreed to terminate a previous agreement under which Cerberus Capital Management would have acquired its Option One Mortgage Corp. unit.

And Merrill Lynch fell 2.4%. The firm named Nelson Chai, who was John Thain's chief financial officer at NYSE Euronext , to the same role at the brokerage. Joost van der Does de Willebois will be acting chief financial officer at NYSE Euronext.

Financial and technology stocks paced a decline for stocks on Monday, with the Dow industrials losing 57 points, the S&P 500 falling 8 points and the Nasdaq Composite losing 23 points. Treasury prices jumped, as did interbank lending rates, reflecting the continued nervousness in markets.

In Europe, three-month interbank lending rates reached their highest level since December 2000.

The economic calendar is sparse for Tuesday, in the U.S. at least. San Francisco Fed President Janet Yellen, in an address Monday after stock markets closed, said developments since the last rate policy meeting in October suggest a bigger slowdown than she expected.

Yellen became the third Fed official in a week to suggest that further rate cuts may be advisable on Dec. 11.

Jim Reid, a credit strategist at Deutsche Bank, noted that Fed futures are pricing in a 40% probability of a half-point interest-rate cut next week.

"This does look a little too aggressive in our view, but the Fed may surprise us yet, especially if Friday's employment number is weak," he said.

The Bank of Canada cut interest rates from the current level of 4.5%.

The dollar was trading up 1.2% up at C$1.0128 after the BoC decision. Rate calls are still expected from central banks in Australia, Britain and the euro zone later this week.

Crude-oil futures edged below $89 a barrel as traders awaited a decision from the OPEC oil cartel on Wednesday.

Few earnings releases are on deck, though there are a number of company presentations, with brokerage-sponsored events in the airline, basic materials, media, real estate and technology fields.

Phillips-Van Heusen slumped 14% after the clothing manufacturer's earnings outlook was below anayst forecasts.

Trump Entertainment Resorts dropped 8.5% after saying its chief financial officer resigned to take a similar role at another gambling company.

By Nick Godt