AIG sank 46 percent, Goldman Sachs Group Inc. lost 5 percent and Morgan Stanley tumbled 16 percent after the cost of borrowing in dollars more than doubled as banks hoarded cash. Benchmark indexes pared losses on growing speculation the Federal Reserve will be forced to cut interest rates today and as a decline of more than $10 a barrel in oil over the last two days improved the prospects for airlines and automakers, sending Ford Motor Co. and US Airways Group Inc. up more than 5 percent.
The S&P 500 declined 5.66 points, or 0.5 percent, to 1,187.04 at 11:26 a.m. in New York after falling almost 2 percent. The Dow Jones Industrial Average fell 34.44, or 0.3 percent, to 10,883.07. Two stocks dropped for each that rose on the New York Stock Exchange.
Losses were limited as odds increased to 100 percent that the Fed will reduce its benchmark rate by at least a quarter percentage point today, according to Fed funds futures trading, and oil retreated to as low as $90.55 a barrel.