* Financial stocks drag due to credit worries
* Verizon disappoints, Kraft beats estimates
* Dow off 1.6 pct, S&P off 1.2 pct, Nasdaq off 1.4 pct
(Updates to afternoon, changes byline)
By Steven C. Johnson
NEW YORK, July 28 (Reuters) - U.S. stocks fell on Monday as
fears of more credit losses pushed financial shares lower while
a mixed bag of quarterly results kept investors cautious about
the outlook for the economy.
News that federal regulators on Friday took over two small
U.S. banks that had failed also added to the gloom, setting the
stage for all three major indexes to fall more than 1 percent.
Bank shares were among the hardest hit, including Citigroup
<C.N>, down 5.7 percent, Merrill Lynch <MER.N>, off nearly 9
percent and Bank of America <BAC.N>, down more than 3 percent.
"People are still afraid of the bad news from the financial
sector," said Victor Pugliese, director of listed equity
trading at Broadpoint Securities in San Francisco.
"Any time you see a bank failing, whether it's a big bank
or a small bank, it's going to be a problem because it says
financials are not out of the woods."
The Dow Jones industrial average <> was down 184.49
points, or 1.62 percent, at 11,186.20. The Standard & Poor's
500 Index <.SPX> was down 15.11 points, or 1.20 percent, at
1,242.65. The Nasdaq Composite Index <> was down 31.96
points, or 1.38 percent, at 2,278.57.
Two weeks after the Federal Deposit Insurance Corp seized
IndyMac Bancorp Inc <IDMC.PK>, the Office of the Comptroller of
the Currency said late on Friday it closed First National Bank
of Nevada and First Heritage Bank NA of California.
"Many have said that there will be more small banks going
under. It's unavoidable, as we're seeing a record level of
mortgages defaulting because of irresponsible lending," said
Gail Dudack, chief investment strategist at the Dudack Research
Group in New York.
"There won't be much good news for the financials until we
see a firming in housing, and the odds are we won't see that
before the end of the year," she added.
On Monday, shares of Citigroup fell 5.6 percent to $17.79
while Bank of America declined 3.5 percent to $28.55 and
Merrill Lynch 8.9 percent to $25.06. All three weighed on the
Dow industrials and the S&P.
Shares of Lehman Brothers Holdings Inc <LEH.N>, the fourth
largest U.S. investment bank, fell 5.2 percent to $16.16 after
a Merrill analyst said the firm may post a third-quarter loss
and a round of fresh write-downs on its residential mortgage
portfolio. For more, see []
Another major loser in the financial sector was insurer
American International Group <AIG.N>, down 7.3 percent at
$25.24. The S&P financial index <.GSPF> fell 1.4 percent.
Even so, shares of housing financing companies Fannie
Mae<FNM.N> and Freddie Mac <FRE.N> rose as the housing rescue
bill approved by Congress offers emergency financing to the two
largest U.S. mortgage buyers. Fannie Mae's stock climbed 1
percent to $11.46 and Freddie Mac's stock rose 0.7 percent to
$8.33, both on the New York Stock Exchange.
But Verizon Communications <VZ.N> declined almost 2 percent
to $33.80 after its second-quarter results showed further
weakness in its landline telephone business.
On the Nasdaq, shares of iPod and iPhone maker Apple
<AAPL.O> were the biggest drag, falling 3.1 percent to
$157.01.
Kraft Foods Inc <KFT.N> shares gained 4.6 percent to $30.72
after the maker of Oreo cookies posted a stronger-than-expected
quarterly profit. []
(Additional reporting by Walter Brandimarte and Ellis Mnyandu;
Editing by Kenneth Barry)
