Financial companies led Wall Street lower on Thursday after a sharp drop in Bank of America Corp's earnings stoked worries about the extent the credit crunch has hurt the economy and profits.
Bank of America, the No. 2 U.S. bank, said profit plummeted 32 percent as it took large write-downs for leveraged and other loans and recorded losses from structured products, including mortgage debt.
The drop in Bank of America's earnings was the latest in a series of disappointing bank results. On Monday, No.1 U.S. bank Citigroup reported a large slide in profits and on Wednesday Washington Mutual Inc, the largest U.S. savings and loan, blamed a sharp profit drop on mounting mortgage losses.
Adding to concerns about the economy, a survey showed factory activity in the U.S. Mid-Atlantic region grew more weakly than expected in October.
The Dow Jones industrial average was down 21.87 points, or 0.16 percent, at 13,870.67. The Standard & Poor's 500 Index was down 5.32 points, or 0.35 percent, at 1,535.92. The Nasdaq Composite Index was down 9.78 points, or 0.35 percent, at 2,782.89.
Oil resumed its upward march, possibly heading for a new record above $89 a barrel that could deepen U.S. economic worries about crimping business and consumer spending.
You've had a series of lousy bank earnings and weak economic numbers this week. There is some fear that the subprime thing isn't over yet or, at the very least, that the fallout is a lot more severe than people thought, said Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, California.
And oil, on top of that, is piling onto the consumer, he added.
The Philadelphia KBW Bank Index slid 1.4 percent, while the KBW Mortgage Index tumbled 3 percent, its biggest one-day percentage drop since late August.
Earlier, a report suggesting weakness in the labor market raised expectations the Federal Reserve would cut rates to forestall a downturn. Interest rate futures showed the perceived chance of a rate cut by the Fed at month's end to help the economy had grown to 72 percent.
Bank of America shares dropped 3.7 percent to $48.20. Shares of Citigroup slid 1.7 percent to $43.91, while Washington Mutual sank 7.7 percent to $30.51. All trade on the New York Stock Exchange.
Shares of home builders also declined. Luxury homebuilder Toll Brothers slumped 2.5 percent to $20.85. The Dow Jones U.S. Home Construction Index dropped 1.5 percent.
Shares of mortgage lender Countrywide Financial Corp fell 4.2 percent to $16.63 after the Wall Street Journal reported federal regulators had begun an informal probe into stock sales by the chief executive.
On the Nasdaq, shares of eBay Inc dropped 6.4 percent to $37.99 on concern about weakening growth prospects for the online auction service.