Weak day on Wall Street

Quick Vote

Is the government doing enough to resolve the subprime mortgage crisis?

• It's playing a suitable role
• It should do more
• It's doing too much
• Not sure

or View results

NEW YORK (CNNMoney.com) -- Stocks slid Tuesday, falling for a second session as worries about banking sector profits kept investors on edge ahead of the upcoming November jobs report and Federal Reserve policy meeting.

The Dow Jones industrial average (Charts) lost 0.5 percent. The broader S&P 500 (Charts) index lost almost 0.7 percent. The tech-fueled Nasdaq (Charts) composite also lost almost 0.7 percent.

The Russell 2000 (Charts) small-cap index was hit hardest, losing 1 percent.

The bank sector led the decline Tuesday, falling for the second session in a row on revived profit worries following negative notes from a pair of brokerages. That sparked a broader stock selloff.

"Whenever we have negative news on the banks, even though it's the same news we've been hearing for months, stocks tend to get hit," said Kenny Landgraf, principal and founder of Kenjol Capital Management.

He said stocks were also vulnerable after last week's big run-up. Stocks gained last week at the end of a weak November marred by concerns about how the housing and credit market crisis will hurt the economy long term. Those worries dominated this week, despite the White House's pledge Monday to aid subprime mortgage holders.

Wall Street is now looking to Friday's November jobs report and next week's Fed-policy meeting for guidance. That sense of anticipation could keep stocks in a tight range ahead of the events, Landgraf said.

Investors are feeling cautiously optimistic right now about those two upcoming events and that's limiting any stock weakness, despite the worries about subprime, said Jack Ablin, chief investment officer at Harris Private Bank.

He said that there's hope that the employment report will continue the generally positive tone of the last few cycles. Additionally, investors are looking for the Federal Reserve to cut a key short-term interest rate by at least a quarter-point, if not a half-point, at the Dec. 11 policy meeting.

On Monday night, San Francisco Fed President Janet Yellen said that worsening financial markets and weak economic news have dampened the economic outlook since the last Fed policy meeting in October. Last week, Fed Chief Ben Bernanke and the bank's No. 2 official, Donald Kohn, hinted that further rate cuts could be on the way, due to deteriorating conditions.

"There's a growing sense that the Fed [officials] are behind the curve, but that they know that they are behind the curve," Ablin said. "My sense is that they will want to cut rates by 50 basis points to help stabilize markets and spark a strong holiday shopping period. We could see a stock rally off that."

In other news, national home prices showed the biggest quarterly drop in 25 years in the third quarter, according to a report released Tuesday.

Wednesday brings the revised reading on third-quarter productivity, the weekly oil inventories report and the monthly reports on factory orders and the services sector of the economy.

Among stock movers, bank shares slipped. JP Morgan Securities said that the weakening debt markets will drag on the profits of Merrill Lynch (Charts, Fortune 500), Morgan Stanley (Charts, Fortune 500), Lehman Brothers (Charts, Fortune 500) and Goldman Sachs (Charts, Fortune 500).

And brokerage Punk Ziegel downgraded a number of firms, including Bear Stearns (Charts, Fortune 500) and JP Morgan (Charts, Fortune 500).

Meanwhile, Cerberus Capital Management and H&R Block (Charts, Fortune 500) said their deal for Cerberus to buy H&R's mortgage subsidiary is now off.

Shares of Dow stock Merck (Charts, Fortune 500) slid after the drugmaker forecast 2007 and 2008 earnings that are short of analysts' expectations.

In other news, Dell (Charts, Fortune 500)'s board approved a $10 billion stock repurchase program. The stock ended lower.

Market breadth was negative. On the New York Stock Exchange, losers topped winners 5 to 3 on volume of 1.33 billion shares. On the Nasdaq, decliners beat winners by more than 3 to 2 on volume of 2.08 billion shares.

Treasury prices slipped, boosting the yield on the 10-year note to 3.86 percent from 3.85 percent late Monday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar dipped versus the euro and the yen.

U.S. light crude oil for January delivery fell 99 cents to settle at $88.32 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery rose $12.90 to settle at $807.60 an ounce.