NEW YORK (Reuters) - Stocks stumbled on Monday, roiled by worries about how big a bite the global financial crisis has taken from banks' profits and fallout from a massive investment fraud scheme.

JPMorgan Chase & Co <JPM.N> was the biggest drag on the Dow after Merrill Lynch cut the stock to an "underperform" rating and forecast a loss for the bank's fourth quarter.

Another blow to sentiment was concern about the financial sector's exposure to potential losses related to investment manager Bernard Madoff, who is accused by U.S. authorities of masterminding a $50 billion fraud.

"There will be some investors as a result of this who say, 'I'm going to put all my money in cash,'" said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

"You should know where your money is custodied."

The Dow Jones industrial average <.DJI> shed 65.15 points, or 0.75 percent, to end at 8,564.53. The Standard & Poor's 500 Index <.SPX> fell 11.16 points, or 1.27 percent, to 868.57. The Nasdaq Composite Index <.IXIC> dropped 32.38 points, or 2.10 percent, to 1,508.34.

The Dow is down 35 percent year to date and nearly 40 percent from its record closing high on Oct 9, 2007.

GOLDMAN SACHS AND APPLE DROP

The downgrade of JPMorgan comes before earnings this week from two other big financial names, Goldman Sachs <GS.N> Tuesday and Morgan Stanley <MS.N> on Wednesday. Analysts expect Goldman Sachs to report its first quarterly loss since going public in 1999. The S&P financial index <.GSPF> fell 4 percent, with JPMorgan's stock down 7.5 percent at $28.63.

Goldman Sachs Group Inc <GS.N> shed 1.9 percent to $66.46 while Morgan Stanley <MS.N> slid 1.5 percent to $13.64.

Technology shares also pulled the market lower after Goldman Sachs cut its rating on Apple <AAPL.O> to "neutral" and removed the iPod maker from its conviction buy list, citing falling consumer demand for its products.

Apple's stock slid 3.6 percent to $94.75 on Nasdaq.

Economic data gave investors more reasons for caution. A gauge of manufacturing in New York State hit a record low in December, while homebuilder sentiment remained at record lows for the month.

Investors looked ahead to an interest-rate decision from the Federal Reserve on Tuesday. The U.S. central bank is expected to cut its benchmark fed funds rate to 0.5 percent from 1 percent in hopes of boosting the weak U.S. economy.

The Dow Jones U.S. Home Construction Index <.DJUSHB> fell 5.5 percent a day before the U.S. Commerce Department is expected to report another monthly drop in housing starts.

ENERGY SECTOR DIPS, BUT GM GAINS

An index of energy stocks slipped 0.3 percent after crude oil fell below $45 a barrel on concerns about global energy demand as major world economies struggle with recession. When OPEC ministers meet on Wednesday, they may make their deepest oil supply cut ever.

Bucking the session's downtrend were shares of General Motors <GM.N> and Ford <F.N>, which rose on hopes that a financial lifeline could still materialize. The timing and size of any U.S. government aid package, however, were still in question.

GM's stock rose 3.6 percent to $4.08 and Ford added 4.6 percent to $3.18.

Volume was modest on the New York Stock Exchange, where about 1.21 billion shares changed hands, below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 1.68 billion shares traded, below last year's daily average of 2.17 billion.

Decliners outnumbered advancers on both the NYSE and the Nasdaq by a ratio of about 3 to 1.

(Editing by Jan Paschal)

By Chuck Mikolajczak

Publié le 15 Décembre 2008 Copyright © 2008 Reuters