Wall Street pulled back for the first time in five days Monday as investors worried about balance sheets at banks and the quarterly results that businesses will start releasing this week.
Investors were also disappointed that talks for IBM Corp.'s $7 billion deal to buy Sun Microsystems Inc. have stalled — a sign that the market is still not ready to support big mergers.
Financial shares sold off after a prominent analyst predicted more losses at banks and said the government's efforts to prop up the ailing industry might not be as effective as hoped.
Michael Mayo issued "sell" ratings on several banks and said in his report that loan losses could exceed levels seen in the Great Depression.
"You have some skittishness in the market," said Len Blum, managing director at Westwood Capital LLC. "We have earnings season up ahead and it's very difficult to predict what that is going to do."
The Dow Jones industrials fell 41.74, or 0.5 percent, to 7,975.85 after being down as much as 155 points.
The Standard & Poor's 500 index fell 7.02, or 0.8 percent, to 835.48, while the Nasdaq composite index fell 15.16, or 0.9 percent, to 1,606.71.
Investors were also rattled by the government's delay of its toxic asset purchase program, which relies on hedge funds and other private investors buying up troubled loans and other assets from banks.
Financial stocks largely carried the market's recent rally, as unprecedented government intervention and reassurances from bank CEOs that business is better than expected fed optimism that the economy could be turning around.
The future of the industry is a chief concern for investors who place hopes for an economic recovery squarely on the banking industry's shoulders.
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