Stocks tumbled on Friday, with the Dow industrials closing at a 6-1/2-year low, on fears the government may be forced to nationalize some big banks even as the White House said it supports a privately held banking system.
Fears that some major banks could be taken over by the government had driven the S&P 500 close to a 12-year low before the White House issued its most direct statement yet on banks.
But even though the comments erased a sharp sell-off in bank stocks, the White House statement failed to address persistent uncertainty about how the government will rescue ailing banks.
We have had a loss in confidence because the government keeps changing its playbook, and when that happens investors don't want to put any capital into the market, said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
They had been down more than 35 percent before the White House comments.
The Dow Jones industrial average <.DJI> fell 100.28 points, or 1.34 percent, to close at 7,365.67. The Standard & Poor's 500 Index <.SPX> ended down 8.89 points, or 1.14 percent, at 770.05. The Nasdaq Composite Index <.IXIC> dipped 1.59 points, or 0.11 percent, to 1,441.23.
For the week, the Dow fell 6.2 percent; the S&P 500 slid 6.9 percent; and the Nasdaq tumbled 6.1 percent.
Investors view the stabilization of the banking sector as crucial for the economy to avert further deterioration, with both businesses and consumer lending still constrained.
Bank of America closed at $3.79 on the New York Stock Exchange. Citigroup ended at $1.95, its first close below $2 since January 1991.
White House spokesman Robert Gibbs told a news conference: This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government.
CNBC television reported the U.S. Treasury department will provide some details on the Obama administration's bank rescue plan next week, helping financial shares cut losses.
Besides financials, top drags also included energy companies, with Chevron
Shares of BlackBerry maker Research In Motion
After the Dow broke through November's bear market lows on Thursday, investors worried that the S&P 500 <.SPX> might not be far from violating its three-month lows. There was also concern the market could retest levels not seen since 1997.
(Additional reporting by Jennifer Ablan)