Stocks tumbled on Monday on worries about the sustainability of recent better-than-expected results from banks after Bank of America Corp reported a big increase in troubled loans.
Dow component Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) lost 14.5 percent to $9.06 after reporting that its purchase of Merrill Lynch & Co helped quarterly profit more than double but credit quality deteriorated markedly.
Shares of Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) shed 13.4 percent to $3.15 after analysts at Goldman Sachs said credit losses at the bank continued to grow at a rapid rate and estimated the bank's underlying first-quarter loss was 38 cents a share.
People are starting to peel the results back and say wait a second, said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. Can (the results) continue in the next quarter?
On the mergers and acquisitions front, Oracle Corp (ORCL.O: Quote, Profile, Research, Stock Buzz) said it would buy Sun Microsystems Inc (JAVA.O: Quote, Profile, Research, Stock Buzz) for about $7.4 billion after Sun's talks with IBM (IBM.N: Quote, Profile, Research, Stock Buzz) broke down earlier this month.
The Dow Jones industrial average .DJI fell 204.62 points, or 2.52 percent, to 7,926.71. The Standard & Poor's 500 Index .SPX lost 24.23 points, or 2.79 percent, to 845.37. The Nasdaq Composite Index .IXIC gave up 49.85 points, or 2.98 percent, at 1,623.22.
The S&P 500 is up more than 25 percent from the bear market close in early March after a six-week rally spurred by some positive comments from banks and hopes that data signaled the economic slump may be moderating.
On Friday, the broad index marked its longest weekly winning streak since 2007, while the Dow racked up its largest six-week gain since July 1938.
Analysts said that more evidence is needed to show the economy is stabilizing. Adding to the negative tone, U.S. President Barack Obama said over the weekend that the economy remains under strain and his top economic adviser tempered hopes for a speedy recovery.
Oracle was the among the biggest drags on the Nasdaq, down 5.1 percent at $18.07, while Sun, the high-end computer server and software maker, was among the biggest lifts, surging 36 percent to $9.09.
Eli Lilly and Co (LLY.N: Quote, Profile, Research, Stock Buzz) reported higher-than-expected profit as it controlled costs and revalued overseas inventory, sending the drugmaker's shares up less than 1 percent at $34.
(Reporting by Leah Schnurr; editing by Jeffrey Benkoe)