Stocks sank on Thursday after a confidence-shaking downgrade of Citigroup by a brokerage that put the No. 1 U.S. bank's dividend in question and added to concern the mortgage crisis may claim more casualties.

Adding to pressure, Exxon Mobil reported earnings that fell short of expectations.

A CIBC World Markets analyst downgraded Citigroup to sector underperformer, citing capital concerns for the biggest U.S. bank. The CIBC analyst wrote she expects Citi to be forced to sell assets, raise capital or cut its dividend to improve its capital ratios.

CIBC also downgraded Bank of America, saying it sees a diminished revenue outlook for the bank. In addition, Credit Suisse cut its rating for Citigroup.

Let's face it, we got a pretty big downgrade on the banks by CIBC. We know there's more to come there, said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut.

The Dow Jones industrial average was down 210.70 points, or 1.51 percent, at 13,719.31. The Standard & Poor's 500 Index was down 25.38 points, or 1.64 percent, at 1,524.00. The Nasdaq Composite Index was down 37.71 points, or 1.32 percent, at 2,821.41.

Stocks surrendered all the gains they made late Wednesday afternoon after the Federal Reserve cut the benchmark fed funds rate a quarter percentage point to 4.5 percent.

Citigroup shares dropped 7.4 percent to $38.34, a 4-1/2-year low, while Bank of America shares shed 3.5 percent to $46.59.

Adding to the gloom in the financial sector, Credit Suisse said its third-quarter investment banking profit was all but wiped out by write-downs in leveraged loan commitments, residential mortgages and collateralized debt obligations.

Exxon shares were down 2.6 percent to $89.61 on the NYSE.

Indexes futures briefly pared some of their declines after a set of September inflation readings largely matched economists' forecasts.

Shares of Crocs plunged nearly 28 percent to $54 after the trendy plastic shoe maker's profit outlook trailed Wall Street forecasts.