U.S. Stocks Slide With Financials Leading Sell-off

NEW YORK (MarketWatch) -- U.S. stocks fell on Tuesday, with financials greasing the slide, after Federal Reserve Chairman Ben Bernanke described financial markets as far from normal and an analyst slashed estimates for major brokers, including Merrill Lynch & Co.

"Financials are selling off again today, we saw an influential analyst cut numbers -- brokers still have downside -- and, the market is just taking some profit," given its 10% climb from the bottom hit in the middle of March, said Noman Ali, portfolio manager, U.S. equities for MFC Global Investment Management.

The Dow Jones Industrial Average fell 74.34 points, or 0.6%, to 12,801.97, with 20 of its 30 components posting losses.

Blue-chip declines were led by Hewlett-Packard Co. , recently down 7.1% after the technology giant said it would acquire Electronic Data Systems Corp. for $13.9 billion to better compete with IBM . .

"Investors are having a hard time understanding this deal, they are buying a slower growth, lower margin business," said Ali.

For EDS shareholders, the pending transaction is a "nice little premium," said Ali.

Off the Dow, shares of EDS gained 1.4%.

Stock index futures had fallen earlier after Wal-Mart Stores Inc. , the world's largest retailer, projected earnings that will likely fall below analysts' forecasts. .

The S&P 500 lost 2.97 points to 1,400.61, with financials fronting its declining sectors, off 0.8%.

In trimming her estimates for four investment firms, Oppenheimer & Co. analyst Meredith Whitney wrote that the banking giants face an outlook "far more bleak than that reflected in the market." .

Energy topped the S&P's rising sectors, up 1.5%, as crude-oil futures climbed to a fresh record near $127 a barrel. Crude for June delivery last traded at $125.9 a barrel, up $1.67, on the New York Mercantile Exchange. The contract had marked a record high in electronic trading, peaking at $126.98 a barrel.

The technology-laden Nasdaq Composite shed 5.39 points to 2,483.1.

Volume on the New York Stock Exchange came to 2.2 billion, with declining stocks edged out those advancing by an 8-to-7 ratio. On the Nasdaq, 1 billion shares traded hands, and declining issues outran those advancing 7 to 6.

Registers ring?

The Commerce Department said retail sales excluding motor vehicles climbed 0.5% in April, better than forecasts calling for a 0.2% gain. .

"Given all of the negative news about the consumer -- gasoline prices, home prices, labor market conditions, and availability of credit -- the strength in this report is a startling reminder of the resilience of the U.S. consumer," said Lehman Brothers economist Drew Matus.

"However, as conditions deteriorate and the likely positive effects on spending from the tax rebates over the next few months fade, we expect to see the U.S. consumer retrench," said Matus.

The retail sales report was boosted by a calendar shift that added a day's worth of shopping to the month, with a look at both March and April casting a dimmer view on the data, said retail analyst Howard Davidowitz of Davidowitz and Associates. .

Other early economic data included a Labor Department report that found import prices climbed 1.8% in April, largely in line with forecasts. .

In a separate report, the Commerce Department reported sales at U.S. businesses jumped 1% in March, the smallest gain in a year. .

In a speech delivered early Tuesday in Atlanta, Federal Reserve Chairman Ben Bernanke said despite some improvements, financial markets remain severely stressed. .

In Vancouver, San Francisco Fed President Janet Yellen sought to ease worries about inflation, telling a business group that prices have likely peaked and should be headed lower in coming months. .

In overseas trade, European shares ended slightly lower after a choppy session amid weakness in the banking sector. .
In Asia, stocks in Shanghai fell as the death toll climbed from the devastating earthquake in China. .

By Kate Gibson