Credit woes and tech trip Wall St day after rally

By Ellis Mnyandu

NEW YORK (Reuters) - U.S. stocks fell on Wednesday after an attempt to extend the previous session's huge rally faltered in the face of persistent worry that more fallout from the housing downturn and credit crunch lies ahead.

The Nasdaq fell the hardest as investors pulled back from the stocks that carried the index to its biggest gain in more than four years the day before. Decliners included Apple Inc (AAPL.O), Google Inc (GOOG.O) and Research In Motion Ltd (RIM.TO)(RIMM.O).

After the closing bell, shares of Applied Materials Inc (AMAT.O) sank more than 4 percent as the top supplier of tools for making microchips posted a lower quarterly profit and forecast fiscal first-quarter profit below Wall Street's estimates.

In after-hours trading, Applied Materials dropped 4.8 percent to $17.91. The stock had ended regular Nasdaq trading up 1.1 percent at $18.81 before the company's earnings announcement.

Trading in the regular session was volatile, with major indexes surging at the opening bell as oil companies' shares surged in sync with a rebound in oil prices and financial stocks rose after Bear Stearns Cos Inc BSC.N forecast additional credit losses that were not as steep as some had feared. Bear Stearns shares finished up 2.4 percent.

The Dow Jones industrial average .DJI dropped 76.08 points, or 0.57 percent, to end at 13,231.01. The Standard & Poor's 500 Index .SPX fell 10.47 points, or 0.71 percent, to close at 1,470.58. The Nasdaq Composite Index .IXIC slid 29.33 points, or 1.10 percent, to finish at 2,644.32.

"Yesterday was just a reflex rally. We're back to the good old wait-and-see posture, waiting for tomorrow's CPI announcement," said Frederic Dickson, senior vice president and market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

"I think a lot of traders realize that the overall situation hasn't changed a whole lot, with yesterday's rally notwithstanding. There are more mortgage-rate resets on the horizon."

TROUBLING REPORT ON GE FUND

In news that could further shake investors' confidence when the market opens on Thursday, a report published by Barron's online edition said a General Electric Asset Management bond fund is offering investors the option to redeem holdings at 96 cents on the dollar.

The Barron's report was published online late in the afternoon, but awareness of it spread after the close.

GE Asset Management was said to have told Barron's it has ceased taking new investments in the affected fund and that it expects liquidity concerns and value dislocations to continue for the foreseeable future.

Barron's also reported that GE Asset Management cited "extreme conditions in credit markets" for an expected loss.

During the regular session, GE's stock fell 0.5 percent to $39.01 on the New York Stock Exchange.

Merrill Lynch's stock rose almost 2 percent on reports that the brokerage would hire NYSE Chief Executive John Thain as its next chief executive. Merrill confirmed the appointment after the closing bell.