U.S. stocks fell on Monday, led lower by the financial services sector after Citigroup Inc offered a gloomier outlook and worries resurfaced about the stability of the buyout market.
The stock market also faced headwind from record high oil prices, which threatened to fan inflation and crimp consumer and business spending.
Meanwhile, an offer by the consortium that agreed to buy student lender Sallie Mae for $25 billion to terminate their agreement reignited worries about the health of the financing market.
Adding to that uncertainty was an announcement that major banks, including Citigroup, were assembling a fund to support the struggling asset-backed commercial paper market.
The underwhelming earnings from Citigroup cast a pall not only on Citi, but also on other financials, said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
And when the Sallie Mae bid was pulled by the prospective buyers, that put more uncertainty into the market and changed people's views on the potential for stability in the buyout market, he added.
The Dow Jones industrial average was down 144.70 points, or 1.03 percent, at 13,948.38. The Standard & Poor's 500 Index was down 15.49 points, or 0.99 percent, at 1,546.31. The Nasdaq Composite Index was down 30.84 points, or 1.10 percent, at 2,774.84.
Shares of Citigroup, which also announced on Monday that it would suspend stock buybacks after a 57 percent drop in third-quarter profit, fell 3.1 percent at $46.40 on the New York Stock Exchange.
Shares of credit card issuer American Express dropped 2.4 percent to $61.70. Bank of America Corp's shares were down 1.6 percent at $51.25. The Philadelphia KBW Bank Index fell 1.7 percent.
Citigroup, JPMorgan Chase & Co and Bank of America Corp said they and several other financial institutions had reached agreement to pool money to prevent investment funds from having to dump assets into the market.
Sallie Mae's shares slid 3.4 percent to $46.80.
The rise in oil prices rise weighed on large industrial companies but boosted the energy sector. Shares of heavy equipment maker Caterpillar Inc dropped 2.4 percent to $78.33 on the NYSE, while Exxon Mobil Corp shares climbed 1.4 percent to $94.84.
The head of the International Monetary Fund saying the dollar needs to weaken further and the possibility of Turkish troops entering Iraq also added to the sour backdrop for stocks, said Ernie Ankrim, chief investment strategist for Russell Investment Group.
(Additional reporting by Herb Lash)