"The Fed can't really restore trust; the market's reaction today is one of uncertainty," said Kevin Giddis, managing director, Morgan Keegan & Co.
The Dow Industrial Average was off 62.3 points, or 0.5%, at 13,411.5, with 21 of its 30 components trading lower, led by American Express Co. , which was recently off 3.6%.
The blue-chip index's other financials stocks fell as well, with J.P. Morgan Chase Co. off 2.6% and Citigroup Inc. down 3%.
"The banks will likely need some more time before they are comfortable playing in the same sandbox again and who can blame them," Giddis said. "Each day one more bank comes clean that the subprime issue is deeper, wider and hairier than they originally thought or were providing cash for."
Merck & Co. was another sliding Dow component, after the drugmaker's childhood vaccines were recalled on concern they might be contaminated. .
The broader stock indexes also declined, with the S&P 500 falling 19.68 points, or 0.9%, to 1,473.91, and the Nasdaq Composite shedding 23.40 points, also off 0.9%, to 2,647.74.
On the New York Mercantile Exchange, crude-oil futures were down $1.64 at $92.75 a barrel, while gold futures dropped $19 to $799.8 an ounce. . .
The dollar, however, gained on the euro, yen and pound. .
And, Treasury prices pulled lower, pushing yields up. .
Volume on the New York Stock Exchange hit 578 million and losing stocks outran those advancing 4 to 1. On the Nasdaq, 925 million shares traded hands, and declining issues ran ahead of advancers about 3 to 1.
The Fed's aggressive plan announced Wednesday to pump money into the global banking system is not expected to immediately trickle down to the consumer level, experts said. .
"We are not going to see the benefit of what the Fed does this week until sometime later this month," said Paul Nolte, director of investments at Hinsdale Associates. .
Early data included a Labor Department report that the producer price index, which measures inflation at the wholesale level, climbed 3.2% in November, the largest rise in more than three decades.
The rise in producer prices proved "much more than we had expected, and our forecast was well above the consensus," said RBS Greenwich Capital senior economist Michell Girard.
A separate Labor Department report had weekly jobless claims declining, although some economists pointed to an overall upward trend, despite the recent drop. .
In a piece of purely positive data, the Commerce Department said retail sales jumped the most in six months in November, climbing a better-than-expected 1.2% in November, the best gain in six months.
Shares of Lehman Brothers Holdings Inc. fell 1.8% after the banking giant said fourth-quarter profit fell for a third straight quarter in its longest-steak of consecutive losses since 2002.
Costco Wholesale said fiscal first-quarter profit grew 11%, meeting analyst estimates, while Jos A. Bank Clothiers reported a 29% profit rise and improved margins.
Biogen Idec Inc. shares plunged, recently down 27%, after the biotechnology giant said a search for potential buyers failed to turn up suitors.
And, Moneygram International is the target of an unsolicited $1.65 billion, or $20 a share, offer from Euronext Worldwide .
Overseas, European markets declined with banks under pressure , while Japanese stocks fell sharply
By Kate Gibson