U.S. stocks fell on Friday as the financial sector spouted more leaks after American International Group Inc. reported a $7.8 billion loss and Citigroup Inc. unveiled plans to shed about half a trillion dollars in assets.

"AIG is a reminder that while the bulk of the stock market is in good shape, the financials and consumer discretionary stocks are still having some difficulties," said Phil Orlando, equity market strategist at Federated Investors.

Positioned for a weekly loss, the Dow Jones Industrial Average (DJI) was recently off 117 points, or 0.9%, to 12,749.78. The Dow is down more than 300 points, or 2.4%, from last Friday's close.

Of the Dow's 30 components, 23 were posting declines, with the blue-chip losses led by AIG (AIG), down 8.6%, following its larger-than-forecast loss, which led Standard & Poor's and Fitch to cut the insurance giant's credit rating. .

Also weighing on the Dow was Citigroup (C), off 0.5%, on word the banking institution would sell or downside pieces of its sprawling empire. .

The broader indexes were also lower, with the S&P 500 (SPX) shedding 10.77 points, or 0.8%, to 1,386.91. Materials led S&P sector declines, off 1.7%, followed by energy, down 1.6%, and health care, off 0.9%.

And, with no end in sight to strong demand for diesel fuel and worries about global supplies, crude-oil futures gained $1.09 to $124.8 a barrel, after rising to a high of $126.25 a barrel earlier on. .

The rising price of crude is "having a negative impact on consumer spending, with a spike in both crude and food, which is having a destabilizing effect on the GDP as it relates to consumer spending -- it's a wake up call," said Orlando.

And crude isn't the only commodity seeing a price run-up, with last week's devastating cyclone in Myanmar adding to concern about supplies of rice, given the country is among the larger producers of paddy rise. .

Only two sectors on the S&P were rising Friday afternoon: telecommunication services, up 1.3%, and utilities, recently ahead 0.2%.

The Nasdaq Composite (RIXF) dropped 11.27 points, or 0.5%, to 2,439.97.

Volume on the New York Stock Exchange topped 1.7 billion, with declining stocks outgunning advancers 3 to 2. On the Nasdaq, 843 million shares were exchanged, and decliners topped advancers 8 to 5.

Trading places

Ahead of the opening bell, stock index futures had trimmed losses after the Commerce Department reported a sharp drop in exports as well as imports, driving the trade deficit down to $58.2 billion. .

U.S. stocks ended higher on Thursday, with better-than-expected April sales by Wal-Mart Stores Inc. (WMT) and other retailers driving a mild rebound.

Orlando, however, questioned whether investors reacted in an overly optimistic fashion to the results from the discount retailers, saying he wonders "how aggressively they needed to mark down in order to move product, so earnings may not be up to snuff."

"We'll have a better feel by the end of the month," said Orlando.

And, the Financial Times reported Sovereign Bancorp Inc. (SOV) would raise as much as $2 billion in fresh capital from investors led by Banco Santander SA ( STD).

In other financials news, Wachovia Corp. (WB) ousted Ken Thompson as chairman, though he will retain his title as chief executive.

Overseas, most Asian markets finished in the red, as worries about inflation weighed.

In Europe, shares were sharply lower as the financial sector came under renewed pressure. .

  (END) Dow Jones Newswires
  05-09-08 1256ET
  Copyright (c) 2008 Dow Jones & Company, Inc.