Stocks Stall As Banking Concerns Are Stoked

IBM-Sun Talks Also Break Down

Renewed concern about the banking industry helped to stall the stock market yesterday after a prominent analyst said major banks still face crippling losses.

Mike Mayo, an analyst with Calyon Securities, warned investors to stay clear of large bank stocks because, he said, many firms have yet to acknowledge the full extent of existing losses on mortgage loans even as problems spread into new categories of loans.

Shares in the 11 large banks cited by Mayo all declined, helping to pull the Standard & Poor's 500-stock index down 7.02 points, or 0.8 percent, to 835.48. The Dow Jones industrial average fell 0.5 percent, or 41.74 points, to 7975.85. Analysts said investors also were reacting to the reported breakdown of merger talks between tech giants Sun Microsystems and IBM.

Yesterday's dip in the major indexes came on the heels of a four-week rally that marked the longest rise since 2007. But several investors said the decline was not a serious cause for concern.

"We've had a really good run here," said Andrew Brooks, head of stock trading at T. Rowe Price. "It should be of no surprise to anybody that we're sort of pulling back a little bit."

Mayo's report launches what is likely to be a month of anxiety about the health of major banks. Most public companies, including banks, will report first-quarter earnings in the next few weeks. Investors said they are expecting most of those results to be poor but are on the lookout for signs of underlying strength -- or weakness -- in the nation's economy.

"On one hand, the bar is set pretty low, so expectations aren't very high," said Jim Dunigan, managing executive of investments for PNC Wealth Management. "There's an opportunity for some positive surprises."

Brooks said investors are also hoping for indications that business will recover in the second half of the year.

"The nuance and the commentary will perhaps be more important than the headline numbers," he said.

But for banks, the real reckoning comes at the end of the month, when the government is expected to complete "stress tests" to determine which companies need more money to weather the economic downturn. Senior banking regulators continue to discuss how those tests will be used, including what information will be released to the public.

The health-care sector was the only one to see gains yesterday, inching up 0.05 percent. Health stocks were boosted by news that the drugmaker Bristol-Myers Squibb confirmed its annual earnings guidance of $1.58 to $1.73 per share. Company stock was up 1.7 percent, or 34 cents, to $20.51.

Sun Microsystems experienced heavy trading after new reports that negotiations for a merger with IBM broke down over the weekend when Sun refused an offer of $9.40 per share. Sun's stock plunged 23 percent, or $1.93, to $6.56. IBM fell 0.7 percent, or 66 cents, to $101.56.

Banks and carmakers helped lift Asian markets yesterday. Japan's Nikkei 225 rose 1.2 percent, or 108.09 points, to 8857.93, while Hong Kong's Hang Seng index soared 3.1 percent, or 452.35, to 14,998.04.

But stocks closed down in Europe, with London's FTSE losing 0.9 percent, or 36.13 points, to 3993.54.