Wall Street in sharp retreat
Stocks slide as investors gear up for the start of the corporate reporting period. Citigroup tumbles on a possible Morgan deal.
NEW YORK (CNNMoney.com) -- Stocks tumbled Monday, dragged down by concerns about Citigroup's potential deal with Morgan Stanley - and the start of the fourth-quarter earnings reporting period.
The Dow Jones industrial average (INDU) lost 1.5%. The Standard & Poor's 500 (SPX) index shed 2.3% and the Nasdaq composite (COMP) slid 2.1%.
Alcoa (AA, Fortune 500) started off the fourth-quarter reporting period on a less-than-encouraging note. The aluminum maker reported an adjusted loss of 28 cents per share, versus a profit of 36 cents per share a year ago. Analysts surveyed by Briefing.com thought the aluminum giant would lose 10 cents. The company also reported a bigger-than-expected rise in revenue.
A week ago, Alcoa warned that it would lay off 13% of its workforce so as to save costs.
Fourth-quarter earnings are anticipated to be pretty dismal across the board, with companies struggling amid the recession.
Stocks slumped Friday after a government report showed employers cut 524,000 jobs from their payrolls in December, bringing 2008's total job losses to almost 2.6 million. Ahead of that, stocks, as measured by the S&P 500, had risen roughly 20% from the bear market lows of late November.
The rally was probably a little too much, a little too quickly, and now investors are experiencing a little buyer's remorse, said Greg Church, founder and president at Church Capital.
"Earnings are going to be a disaster and I think the Citigroup story is having an impact too, since it brings the focus back to the financials," he said.
Company news: Citigroup (C, Fortune 500) is reportedly in talks with Morgan Stanley (MS, Fortune 500) to sell a majority stake in its Smith Barney brokerage unit as a means of raising cash. Citigroup shares fell 17% Monday, while Morgan shares fell 1%.
Financial shares slipped, including Bank of America (BAC, Fortune 500), which lost 12%.
Abbott Laboratories (ABT, Fortune 500) said Monday it is buying Advanced Medical Optics (EYE) for $1.36 billion plus debt to expand its eye-care offerings, including laser vision care. Advanced Medical Optics shares gained 143%.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by over three to one on volume of 1.30 billion shares. On the Nasdaq, decliners topped advancers by three to one on volume of 1.81 billion shares.
Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.30% from 2.40% Friday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates improved. The 3-month Libor rate fell to 1.16% from 1.26% late Friday, according to Bloomberg.com. Overnight Libor held steady at 0.10%. Libor is a key bank lending rate.
Other markets: In global trading, Asian and European markets tumbled. The dollar eased versus the yen and gained against the euro.
U.S. light crude oil for February delivery fell $3.24 to settle at $37.59 a barrel on the New York Mercantile Exchange.
COMEX gold for February delivery fell $34 to settle at $821 an ounce.
Gasoline prices slipped 0.2 cent to a national average of $1.79 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA. 
