NEW YORK (CNN/Money) - Merrill Lynch & Co. Inc. said Wednesday it has fired a top retail analyst for a research policy violation.

Merrill, the nation's biggest securities firm, fired research analyst Peter Caruso Tuesday for violating the firm's policy on disclosure of an earnings estimate change on one of the companies he covered.

A market source said Caruso's dismissal was due to his warning select clients that he planned to downgrade home-improvement retailer Home Depot Inc. (HD: up $1.93 to $32.18, Research, Estimates)

"Our clients, our management and the investing public expect the highest possible standards of professionalism in every aspect of Merrill Lynch's business,'' Merrill Lynch spokeswoman Melanie Begelman said. "Anything less will not be tolerated."

Merrill would not confirm or deny that Caruso's dismissal was related to his Home Depot downgrade. Neither Caruso nor his attorney could be reached for comment.

Caruso, who had often been recognized as a top research analyst by Thomson Financial, Institutional Investor magazine and other organizations, covered 22 retail companies, including Home Depot.

Home Depot stock dropped 7.4 percent on July 12 after Caruso cut his recommendation on the shares to "neutral" from "strong buy" and warned that sales at stores open for more than a year, a closely watched measure of retail performance, could be weaker than expected. In the days before his downgrade, between July 8 and July 11, the company's shares fell more than 17 percent.

Home Depot had no comment on Caruso's dismissal.

Merrill agreed earlier this year to pay a $100 million settlement, without admitting any wrongdoing, and make changes to its research department following conflict-of-interest charges brought by N.Y. Attorney General Eliot Spitzer.

Spitzer alleged that the firm's research analysts gave more favorable stock ratings to companies that used Merrill to raise money by selling their stock and bonds to the public. He also released e-mails showing Merrill analysts privately disparaging stocks that publicly got high ratings from the firm.

Merrill (MER: down $0.23 to $37.20, Research, Estimates) shares fell nearly 2 percent in early trading Wednesday.