U.S. Stocks End Lower, Pressured By Oil, Financials

NEW YORK (MarketWatch) -- U.S. stocks ended in the red Wednesday, weighed down by a rebound in oil prices and ongoing worries about the financial sector sparked by Merrill Lynch's downgrades of several banks.

The Dow Jones Industrial Average fell 109.5 points to 11,532, with only five of its components finishing in positive territory.

Financials led the blue-chip decliners. Shares of Bank of America fell 7.3%, Citigroup dropped 3.9% and American Express fell 3.1%.

Shares of General Motors Corp. dropped 7.6% after Moody's Investors Service lowered the company's corporate family rating to Caa1 from B3 with a negative outlook.

The S&P 500 index ended down 3.76 points, or 0.3%, at 1,285 points and the Nasdaq Composite finished down 2 points to 2,428.

There was "a solid decline in financials across the board," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

"There is a deep-seated concern there," Pado said. Also, "you got a pretty decent pop in crude and the market has been keying off of crude the last several weeks."

Oil prices ended higher for the first time in four sessions after the U.S. Energy Department reported declines in crude, distillate and gasoline supplies for last week.

September crude closed at $116 per barrel, up $2.99, or 2.7%.

Wednesday's volume was light, with 1.2 billion shares traded on the New York Stock Exchange, where declining stocks outnumbered those advancing 17 to 13. On the Nasdaq, 822 million shares traded, with advancers outpaced decliners 14 to 13.

Financials sell off

"The financials [are] really what sold off," said Art Hogan, chief market strategist at Jefferies & Co. Merrill Lynch's downgrades of several investment banks put the sector under selling pressure, Hogan said.

Merrill Lynch analyst Guy Moszkowski downgraded on Wednesday Citigroup, Goldman Sachs Group and Lehman Brothers Holdings to underperform, according to media reports. Moszkowski also lowered Morgan Stanley's rating to neutral.

Separately, Richard Bernstein, chief investment strategist at Merrill Lynch, said that "the credit crisis is broad, deep and global, and it is not likely to end soon."

"The problems in the financial sector appear to us to be far from over, and we are skeptical that trying to bottom-fish will prove to be profitable," Bernstein said in a research report Wednesday.

Weak retail sales data, rising import prices and cautious earnings outlooks from Deere & Co. , Liz Claiborne and Macy's also dented sentiment Wednesday.

"The economic data, taken in total, were not that good, with Deere missing numbers and concerns still about lingering inflation, with the import price index still fairly high," said Paul Nolte, director of investments at Hinsdale Associates.

"Again, we still have some of the overhang from yesterday in the financials," citing the broad-based selling in the sector Tuesday on Wall Street.

J.P. Morgan Chase's $1.5 billion write-off, Wachovia's wider-than-originally-reported second-quarter loss and reduced earnings estimates for Goldman Sachs Group all dragged on U.S. stocks in Tuesday's session.

Lackluster retail sales

Earlier, the Commerce Department estimated that U.S. retail sales dropped 0.1% in July, not as bad as the 0.3% forecast by economists. Falling auto sales offset an increase in gasoline sales.

"Fortunately, gasoline prices have fallen since July, which is giving the consumer some relief," said Nigel Gault, chief U.S. economist at Global Insight, in a note. "But the consumer is still under enormous pressure as employment is declining, real wages are down, housing and stock-market wealth are down, and credit conditions continue to tighten."

In other economic news, the Labor Department reported that U.S. import prices rose by 1.7% in July, mostly on prices for imported petroleum and natral gas.

Separately, U.S. inventories for June rose 0.7%, compared with analyst expectations of a 0.6% increase, and the inventory-to-sales ratio fell to a record-low reading of 1.23.

On the earnings front Wednesday, Deere warned that rising raw materials will impact margins in the current quarter. Shares of the tractor maker dropped 3.2%. .

After falling earlier in the session, shares of Macy's rebounded to end up 1.9% as the department-store operator said second-quarter profit dipped, hurt by restructuring costs and consumer cutbacks on discretionary purchases. The company also lowered its full-year projection, saying it's difficult to forecast future results against the current economic backdrop.

Shares of Liz Claiborne dropped 11.6% after the company cut its earnings outlook.

On the rise, shares of chipmaker Nvidia rallied 10.8% as investors looked past the company's $121 million loss to an increased stock buyback of $1 billion and its prediction of margin improvement.

On the deals front, CVS Caremark said it will buy Longs Drug Stores for $2.9 billion, or $71.50 a share, a 32% premium over Longs' closing price on Tuesday. .

Oil led a broad rebound in the commodities sector, with the Reuters/Jefferies CRB Index , a benchmark gauging the prices of major commodities, rising 2.4%.

December gold closed at $831.50 an ounce, up $16.90, or 2.1%, on the New York Mercantile Exchange. The contract recouped some ground after falling almost 12% during an eight-session losing streak.

In currency trading, the dollar hit the highest since at least March against the euro and other major currencies. The dollar index , which measures the greenback against a basket of currencies, rose to 76.24 in North American trading, the highest since March, from 76.13 late Tuesday.

By Polya Lesova