Stocks down as WaMu dents banks, Fed minutes drag

By Kevin Plumberg

NEW YORK (Reuters) - Stocks fell on Tuesday, after Washington Mutual Inc said it expects a large quarterly loss, raising concerns about results from the rest of the financial sector, while minutes from the Federal Reserve's latest meeting stoked fears of a recession.

Washington Mutual, the largest U.S. savings and loan, also slashed its dividend even as it received a $7 billion capital infusion, and its shares tumbled 10 percent. Bank of America Corp and Citigroup Inc were among the heaviest drags on the S&P and the Dow.

Weakness on Wall Street left investors wondering whether a rebound in the financial sector since mid-March had staying power through next week when JPMorgan Chase, Merrill Lynch & Co Inc and Citi will report first-quarter results.

"It basically rekindled fears we had three weeks ago that there are other shoes to drop in that group," said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.

Weak outlooks, meanwhile, from chip maker Advanced Micro Devices and semiconductor equipment maker Novellus Systems Inc

fueled concerns about business and consumer spending.

The market extended its decline after minutes from the latest Fed policy meeting showed some of the central bankers saw the possibility of a "prolonged and severe economic downturn."

The Dow Jones industrial average was down 35.99 points, or 0.29 percent, finishing at 12,576.44. The Standard & Poor's 500 Index was down 7 points, or 0.51 percent, ending the day at 1,365.54. The Nasdaq Composite Index was down 16.07 points, or 0.68 percent, at 2,348.76.

The S&P financial index sank 1.68 percent.

Broadly speaking, credit markets have stabilized and the S&P 500 has risen 6 percent since mid March when the Fed had backed JPMorgan Chase's takeover of Bear Stearns and stepped up its efforts to increase liquidity in Wall Street.

However, economic data and quarterly results for companies such as AMD and aluminum producer Alcoa Inc continue to reflect uncertainty.

A report by the National Association of Realtors showed pending sales of previously owned homes in February fell to the lowest level on records going back to 2001. The Dow Jones home construction index fell 4.3 percent, the biggest daily decline in two weeks, as shares of home builders such as D.R. Horton Inc slid.

AMD, the second largest maker of computer processors, gave a first-quarter revenue estimate below expectations after Monday's market close and said it would cut 10 percent of its work force. Its stock fell 4.9 percent to $6.03.

Shares of Novellus Systems fell 8.1 percent to $21.88 after it said first-quarter earnings would be lower than expected and revenue would be at the low end of its forecast range.

"Tech can't seem to get going," said Todd Leone, head of listed trading at Cowen & Co in New York. "The economy is a little weaker, there's talk of recession and some of the earnings numbers are a little weaker."