NEW YORK -- A four-day rally on the stock market ended Thursday with a slump led by banks. Many investors also sold stocks ahead of the government's monthly jobs report Friday, fearful that it might revive worries that the U.S. could enter another recession.
Goldman Sachs fell 3.5 percent after regulators announced enforcement actions against a former subsidiary of the bank over mortgage and foreclosure practices. Bank stocks fell more than the rest of the market as investors worried that other banks might face similar reprisals. Financial stocks in the S&P 500 dropped 2.4 percent, the most of the 10 company groups that make up the index.
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"There's obviously a lot of fear in the marketplace," said Ann Miletti, managing director and senior portfolio manager at Wells Capital Management. "Right now, the market's just lacking confidence."
The Dow Jones industrial average fell 119.96 points, or 1 percent, to close at 11,493.57. It rose as many as 103 points shortly after 10 a.m., when a key manufacturing report showed evidence of growth in August.
Retailers including Macy's and Costco rose after reporting strong sales last month, despite wild swings in the stock market and worries about the economy.
Goldman Sachs, in a settlement with a New York state banking regulator, agreed to stop controversial mortgage-related practices such as the "robo-signing" of documents. The settlement was a condition to Goldman's sale of its Litton Loan Servicing subsidiary, where the practices occurred.
Also Thursday, the Federal Reserve said it ordered Goldman to review how foreclosures were handled at Litton. The Fed said there was a "pattern of misconduct and negligence" at Litton.
Stock indexes traded mixed for much of the day but turned lower after the Fed's announcement on Goldman Sachs came out at 1:30 p.m. They drifted lower for the rest of the afternoon.
Other banks also fell. Citigroup Inc. lost 3.4 percent and PNC Financial Services Group Inc. fell 3.2 percent. Bank of America Corp., which is facing many lawsuits over its dealings in mortgage-backed securities, also fell 3.2 percent.
The regulatory actions showed that problems related to the mortgage crisis in 2008 remain far from over, said Quincy Krosby, market strategist at Prudential Financial. She also said investors were nervous ahead of the Labor Department's jobs report.
The Standard & Poor's 500 index fell 14.47 points, or 1.2 percent, to 1,204.42.
SAIC Inc. fell 13.5 percent, the most in the S&P 500, after the technology company issued a full-year earnings forecast that was below analysts' expectations. The company, which provides engineering and technology services to the military and other agencies, cited tightening government budgets.
The Nasdaq composite index fell 33.42, or 1.3 percent, to 2,546.04.
All three indexes had their worst August since 2001 after fears of an economic slowdown in the U.S. and debt issues in Europe put investors on edge.
Trading volume was relatively light at 4.3 billion shares. Many traders were on vacation. Low volume suggests that relatively few investors were driving the market's gains and losses.
Rob Lutts, president and chief investment officer of Cabot Money Management, said he expected volume to remain very low until early next week, when many traders return to work after Labor Day. "That's when we'll see what's really going on," Lutts said.
Retailers rose after several companies reported sales gains that beat analysts' estimates. August is an important month for back-to-school shopping, which can account for up to 25 percent of retailers' annual revenue. Macy's Inc. rose 2.1 percent; Costco Wholesale Corp. rose 1.2 percent.
About three stocks fell for every one that rose on the New York Stock Exchange.