* Concerns resurface over mortgage bonds
* Apple, IBM slide after earnings
* China raises interest rates in bid to cool economy
* Indexes down: Dow 1.5 pct; S&P 1.6 pct; Nasdaq 1.8 pct
* For up-to-the-minute market news see []
(Updates to close)
By Edward Krudy
NEW YORK, Oct 19 (Reuters) - U.S. stocks posted their
biggest loss in two months on Tuesday on fears banks might be
on the hook for billions of dollars in souring mortgage bonds.
The afternoon selloff hit investors already reeling from an
unexpected credit tightening by China and disappointing
financial results from Apple <AAPL.O> and IBM <IBM.N>.
The biggest scare came on news that Bank of America <BAC.N>
and possibly others may be forced to take back billions of
dollars in mortgages that should not have been bundled into
bonds.
"It's reminding investors of what was the main impetus for
the horrific selloff we had a few years ago," said Eric Kuby,
chief investment officer at North Star Investment Management in
Chicago. "If you were recently struck by lightning, you are a
little skittish when there is a thunderstorm."
Bank of America shares fell 4.4 percent to $11.80 after a
Bloomberg report, citing people familiar with the matter, said
investors PIMCO and BlackRock as well as the New York Federal
Reserve Bank were seeking to force the lender to repurchase $47
billion in mortgage bonds. The bank, the New York Fed and PIMCO
declined to comment.
The Dow Jones industrial average <> dropped 165.07
points, or 1.48 percent, to 10,978.62. The Standard & Poor's
500 Index <.SPX> lost 18.81 points, or 1.59 percent, to
1,165.90. The Nasdaq Composite Index <> fell 43.71 points,
or 1.76 percent, to 2,436.95.
Apple's shares fell 2.7 percent to $309.49 and weighed on
the Nasdaq after iPad sales fell short of some analysts'
expectations. For details, see []. Only the day
before, Apple shares hit a lifetime high.
International Business Machines Corp was lower after it won
fewer technology service deals than expected in the third
quarter. Its shares were down 3.4 percent at $138.03, even
though it announced stronger profits and raised its full-year
outlook. [].
Shares of Apple and IBM had advanced sharply heading into
the earnings reporting season.
IBM shares rose 16 percent from the end of August until its
financial results late on Monday, while Apple shares jumped
30.8 percent during that time and the S&P 500 was up 12.9
percent.
The foreclosure mess overshadowed earnings from Bank of
America, which joined its two biggest rivals in reporting
stronger-than-expected operating earnings on declining credit
losses. []
Also reporting earnings, Goldman Sachs Group Inc <GS.N>
said net trading revenues fell by more than a third in the
quarter, but the company's profits still beat analysts'
estimates, sending its shares up 2 percent to $156.72.
China's decision to hike interest rates drove the dollar
higher as investors cut exposure to risk. That put downward
pressure on commodities and related stocks. Oil company Exxon
Mobil <XOM.N> fell 1.8 percent to $65.12 while the S&P energy
index <.GSPE> lost 2.4 percent.
The selloff came on high volume in a pattern similar to
last week's when fears over banks surfaced.
About 9.76 billion shares traded on the New York Stock
Exchange, the American Stock Exchange and the Nasdaq -- above
the year's average so far of about 8.77 billion.
Declining stocks outnumbered advancing ones on the NYSE by
a ratio of nearly 5 to 1. The ratio was about the same on the
Nasdaq.
(Reporting by Edward Krudy; Editing by Kenneth Barry)
