Fears on Citi and earnings season weigh on stocks

NEW YORK (Reuters) - Stocks fell on Monday as concerns about massive credit losses at Citigroup knocked its shares 17 percent lower, dragging down bank stocks, and on fears of a dismal fourth-quarter earnings season.

A Wall Street Journal report that Citigroup could report more than $10 billion in fourth-quarter operating losses struck a blow to other banks on fears of a fresh round of losses from the credit crisis.

The S&P Financial index .GSPF fell 5.7 percent.

Alcoa Inc (AA.N) kicked off the earnings season after the bell with a wider-than-expected loss of 28 cents a share, excluding items. Ahead of the results, its shares closed down nearly 7 percent after Deutsche Bank recommended investors sell the stock, and slipped another 1.1 percent to $9.95 in after-hours trade.

"Profits drive the stock market, and we want to see if anybody's got any," said Frank Lesh, futures analyst and broker at FuturePath Trading LLC in Chicago. "There is caution going into earnings season, and we'll probably have a few more weeks of it."

Fourth-quarter S&P 500 earnings are expected to decline 15.1 percent from a year earlier, marking the sixth straight quarterly fall, according to Thomson Reuters estimates.

The Dow Jones industrial average .DJI fell 125.21 points, or 1.46 percent, to 8,473.97. The Standard & Poor's 500 Index .SPX dropped 20.09 points, or 2.26 percent, to 870.26. The Nasdaq Composite Index .IXIC lost 32.80 points, or 2.09 percent, to 1,538.79.

The slide increased the indexes' losses since the start of 2009. Even so, the benchmark S&P 500 index is 15.7 percent above its November low.

The Dow has fallen for four consecutive sessions but remains up 12.2 percent from its closing low on November 20.

Year-to-date, the S&P is down 3.7 percent, the Dow has fallen 3.4 percent and the Nasdaq has slipped 2.4 percent.

Adding to concerns on Citigroup was news that the embattled U.S. bank is nearing a deal to sell a controlling stake in its Smith Barney retail brokerage business to Morgan Stanley (MS.N). Investors fear that Citigroup is looking to sell one of its best assets because it needs cash.

Financial stocks were among the worst performers on the Dow, as Bank of America (BAC.N) tumbled 12 percent, JPMorgan fell 4.1 percent, and Citigroup slumped to $5.60, near the stock's level before the bank was bailed out by the U.S. government last year.

After the closing bell, JPMorgan announced that it had moved its fourth-quarter earnings release date up to January 15 from January 21, sending shares up 1.6 percent to $25.30 in extended trade.

It was the fourth straight day of declines for the S&P Financial index and the longest losing streak since the November bailout of Citi.

Investors also sold off shares of energy companies including Chevron (CVX.N) on concerns oil demand will be hurt by the economic slump. U.S. crude oil futures ended down nearly 8 percent.

Chevron fell 2.8 percent to $70.82 while Exxon Mobil (XOM.N) shed 1.3 percent to $76.54. The S&P Energy index .GSPE slid 3.1 percent.

Caterpillar (CAT.N), a maker of excavators and bulldozers, was the top weight on the Dow with a tumble of 4.7 percent to $41.19.

On Nasdaq, Apple Inc (AAPL.O) was the primary drag, 2.1 percent to $88.66.

However, there were bright spots due to merger activity. Shares of Advanced Medical Optics EYE.N surged 143 percent to $21.50 after the company agreed to be bought by Abbott Labs (ABT.N) for nearly $1.4 billion. Abbott shares lost 2.2 percent to $50.06.

In response to the faltering economy, President-elect Barack Obama asked President George W. Bush to seek from Congress the remaining $350 billion of the $700 billion financial industry bailout, and he agreed to do so, the White House said.

Obama, who will be sworn in on January 20, has vowed to restructure Washington's financial rescue plan to stem mortgage loan foreclosures.

Volume was light on the New York Stock Exchange, where about 1.31 billion shares changed hands, below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 1.81 billion shares traded, also below last year's daily average of 2.28 billion.

Decliners outnumbered advancers on both the New York Stock Exchange and Nasdaq by a ratio of about three to two.

(Editing by Leslie Adler)