Wall Street falls amid further banking worries

NEW YORK - The dawn of the Obama presidency could not shake the stock market from its dejection over the rapidly deteriorating state of the banking industry.

Financial stocks, many of them falling by double digit percentages, led a huge drop on Wall Street Tuesday that left the major indexes down more than 4 percent and the Dow Jones industrials down 332 points.

Although traders on the floor of the New York Stock Exchange paused to watch the inauguration ceremony and listen to Obama's remarks, the transition of power didn't erase investors' intensifying concerns about struggling banks and their impact on the overall economy.

The market's angst, which began with multibillion losses reported last week by Bank of America Corp. and Citigroup Inc., intensified after the Royal Bank of Scotland's forecast that its losses for 2008 could top $41.3 billion.

The collapse in bank stocks was swift Tuesday: State Street Corp. plunged 59 percent, Citigroup fell 20 percent and Bank of America lost 29 percent. Royal Bank of Scotland fell 69 percent in New York trading.

The shrinking dollars in banks leaves the financial industry accounting for less than 10 percent of the Standard & Poor's 500 index for the first time since 1992. At the end of 2006, banks made up 22 percent of the stock market benchmark.

Investors expect Washington will be a central part of the economic recovery. But the first hours of Obama's term did little to ease their concerns.

"At this stage, markets in general and bank investors specifically are really looking to government as the way out," said Jack Ablin, chief investment officer at Harris Private Bank. "Certainly, of just about all of inaugurations that I can recall today's event probably has the not only the symbolic importance but really tangible importance to the stock market."

According to preliminary calculations, the Dow Jones industrial average fell 332.13, or 4.01 percent, to 7,949.09, its lowest close since Nov. 20, when the blue chips ended at 7,552.29 - their lowest point in more than five years. It was also the blue chips' biggest drop since Dec. 1.

Broader stock indicators also fell sharply Tuesday. The Standard & Poor's 500 index fell 44.90, or 5.28 percent, to 805.22, and the Nasdaq composite index fell 88.47, or 5.78 percent, to 1,440.86.

The Russell 2000 index of smaller companies fell 32.80, or 7.03 percent, to 433.65.

Losing issues outnumbered gainers by about 9 to 1 on the New York Stock Exchange, where volume came to 1.72 billion shares.