Bank stocks led the market lower after the Federal Reserve cut its economic forecast and said unemployment could get worse.
The Fed's prediction Wednesday that the jobless rate could approach 9.6 percent — worse than its previous forecast of 8.8 percent — was especially ominous for banks since that data is a component of the government's recent "stress tests" designed to determine how healthy banks are.
The sharp swings in financial shares have been a typical market pattern in recent weeks as investors rush into and out of bank stocks based on the latest thinking about how well the industry will endure the economic slump and a credit crisis that brought down three Wall Street investment banks.
In other parts of the market, energy stocks surged as oil topped $62 a barrel for the first time since November, and Treasury prices rose smartly after the Fed said it might increase its purchases of government debt.
The Dow Jones industrials fell 52.81, or 0.6 percent, to 8,422.04. The blue chips had been up as much as 117 points in early trading. The Standard & Poor's 500 index slipped 4.66, or 0.5 percent, to 903.47, and the Nasdaq composite index fell 6.70, or 0.4 percent, to 1,727.84.
Many market-watchers think stocks could be due for another fall after their steep ascent over the past two months.
"Just as markets sometimes go too far on the negative in the short-term, they can go too far in the positive," said Subodh Kumar, an independent investment strategist in Toronto. "I think right now the markets will have trouble keeping momentum."
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