U.S. stocks fell on Thursday as financial stocks dropped on credit worries, overshadowing earlier optimism about technology company profits.

Lehman Brothers slashed earnings estimates on four top Wall Street banks, adding its voice to the chorus of widely followed research analysts warning credit turmoil would cut into bank profits.

Adding to negative sentiment Merrill Lynch cut its recommendation on Wal-Mart Stores Inc's stock to sell.

People are wary of the financials, said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.

I do think that people continue to focus on the big question, 'How widespread are these credit problems?' And then you have high-profile analysts reminding the market that there are probably bad earnings from the financials coming in the back half of the year because of write-downs.

Technology stocks showed strength as investors bet business spending will support the sector's profits even as the housing slump hampers growth in other parts of the economy.

The Dow Jones industrial average was down 15.85 points, or 0.12 percent, at 13,273.44. The Standard & Poor's 500 Index was down 2.61 points, or 0.18 percent, at 1,461.15. The Nasdaq Composite Index was up 11.07 points, or 0.43 percent, at 2,574.23.

The Dow and the S&P had seesawed earlier, dropping first on news that toxic gas had been discovered in a United Nations building in New York but reversing the losses when U.N. officials said there was no danger.

Shares of Goldman Sachs, Bear Stearns, Morgan Stanley and Merrill Lynch fell after Lehman Brothers cut its price target on the banks, saying their third-quarter earnings would be hurt by the turmoil in the credit and asset backed mortgage markets.

Goldman Sachs' shares fell 0.8 percent to $172.34, Morgan Stanley fell 1.5 percent to $60.31, Bear Stearns slipped 0.43 percent to $106.64, while Merrill Lynch dropped 1.2 percent to $72.22.

H&R Block Inc shares fell 1.2 percent to $19.74 said the sale of its Option One Mortgage Corp. subprime lending unit may fall apart, as credit markets deteriorate and after its quarterly loss more than doubled.

Shares of Freddie Mac, the second-largest U.S. source of home loan funding, fell 4.55 percent to $60.40 after reporting second-quarter net income fell 45 percent from a year earlier as more borrowers defaulted on their loans.