The Standard & Poor's 500 Index lost as much as 3.9 percent, erasing almost half of its rally over the previous two days. Sovereign Bancorp Inc., Marshall & Ilsley Corp. and Washington Mutual Inc. sank more than 20 percent on speculation the bank bailout will lower the value of mortgage loans they hold. Apple Inc. and Cisco Systems Inc. dragged down computer stocks on concern slower growth will reduce sales.
The S&P 500 retreated 48 points, or 3.8 percent, to 1,207.08 at 3:49 p.m. in New York. The Dow Jones Industrial Average slid 378.24, or 3.3 percent, to 11,010.2. The Nasdaq Composite Index decreased 89.74, or 4 percent, to 2,184.16. Seven stocks retreated for each that rose on the New York Stock Exchange.
The S&P 500 Regional Banks Index slumped 10 percent today as all 12 of its companies declined. The group rallied 101 percent from its July 15 low through Sept. 19, more than three times the gain of the index's biggest banks.
The S&P 500 Financials Index declined 8.4 percent today. The government's plan to purge banks of toxic assets and crack down on speculators who bet against shares of financial companies sent the group up 24 percent in the final two days of last week.
Homebuilders in S&P indexes fell as much as 13 percent, their biggest drop on record, on speculation the bailout plan won't immediately stem the decline in home prices that's left homeowners unable to refinance mortgages they can no longer afford, leading to a record rate of foreclosures in June. D.R. Horton Inc., the largest U.S. homebuilder by market value, fell 16 percent to $12.58.
Brazilian stocks fell for the first time in three days, led by retailers and banks, on concern that tighter credit and slowing global growth may reduce earnings. The Bovespa index slid 300.29, or 0.6 percent, to 52,755.09 at 2:09 p.m. New York time.