Sept. 17 (Bloomberg) -- U.S. stocks fell as withdrawals from British bank Northern Rock Plc reignited concern over the cost of credit and sent the Standard & Poor's 500 Index down for the first time in five days.
Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. led declines among financial companies as traders also pared bets the Federal Reserve will lower its benchmark rate by half a percentage point tomorrow. Marsh & McLennan Cos., the biggest insurance broker, dropped the most in three years after replacing the head of its flagship unit. Microsoft Corp. retreated after losing a European antitrust appeal.
The S&P 500 slipped 7.6, or 0.5 percent, to 1,476.65. The Dow Jones Industrial Average decreased 39.1, or 0.3 percent, to 13,403.42. The Nasdaq Composite Index dropped 20.52, or 0.8 percent, to 2,581.66. About 1.1 billion shares changed hands on the New York Stock Exchange, the second fewest for a full session this year.
The interest rate banks charge each other for overnight loans in pounds increased the most since June as Northern Rock customers withdrew savings after the bank was forced to seek emergency funding. Financial companies in the S&P 500 have lost 9.4 percent this year, the most among 10 industries, on concern credit-market losses will reduce earnings.
``We're seeing photos on the news of people lining up outside of banks,'' said Michael Barron, who manages about $1 billion as chief executive officer of Knott Capital Management in Exton, Pennsylvania. ``It seems to really illustrate the stress facing the overall economy and credit markets. This has investors nervous.''
Northern Rock
Northern Rock, the U.K. mortgage lender bailed out by the Bank of England last week, tumbled to a seven-year low in London as hundreds of clients ignored assurances from Chief Executive Officer Adam Applegarth and U.K. Chancellor of the Exchequer Alistair Darling that their deposits are secure. Customers removed at least 2 billion pounds ($4 billion), or about 8 percent of Northern Rock's total, since Sept. 14, according to an estimate by JPMorgan Chase & Co.
The lender needed emergency funding last week because it relies on the capital markets rather than deposits for 73 percent of its funds.
The overnight rate banks charge to lend British pounds soared 60 basis points to 6.47 percent today, according to the British Bankers' Association. The overnight rate for dollars rose 17 basis points to 5.30 percent.
Fed funds futures contracts show a 50 percent chance that the Fed will lower its benchmark rate from 5.25 percent to 4.75 percent tomorrow, down from 58 percent odds on Sept. 14. Traders are certain of a cut of at least a quarter point.
'Psychology of Fear'
An unfounded concern that the U.S. economy will slip into a recession has pushed some stocks down too far, investor Laszlo Birinyi said.
``All the bad news is being magnified,'' said Birinyi, who helps manage about $600 million as president of Birinyi Associates Inc. in Westport, Connecticut. ``Good, solid companies which have nothing to do with finance, which are really immune from all these other issues, are being punished just as severely as stocks which are really tied to the issues.''
``Right now, we have that psychology of fear,'' said Birinyi.
Financial Shares Drop
Marsh & McLennan dropped $1.58, or 6 percent, to $24.60, an almost four-year low. Brian Storms stepped down as the company said it needed someone with different skills to serve as chief executive officer of its Marsh Inc. brokerage unit. Morgan Stanley analysts lowered the stock to ``underweight'' from ``equal weight,'' saying the ``uncertainty'' could weigh on customer relationships.
Financial shares were the biggest drag on the S&P 500, dropping 0.8 percent as a group.
Credit Suisse Group American depositary receipts decreased 61 cents to $63.80. The second-biggest Swiss bank and other lenders agreed to lower the amount of loans they'll initially sell for the buyout of First Data Corp. to $5 billion and cut the price to 96 cents on the dollar, according to three people with knowledge of the talks.
David Lilly, a spokesman for Kohlberg Kravis Roberts & Co., the company acquiring First Data, declined to comment, as did Bruce Corwin, a Credit Suisse spokesman in New York.
The decision to sell debt at a discount follows similar moves by lenders including Citigroup and JPMorgan in the takeovers of Alliance Boots Plc and Allison Transmission Inc.
Microsoft fell 32 cents to $28.73. The company lost its appeal of a European Union antitrust decision after three years of legal wrangling, forcing it to pay a record 497 million-euro ($689 million) fine and help rivals connect their products to the Windows operating system.
Goldman, RadioShack
Goldman Sachs Group Inc., the second-largest U.S. manager of hedge funds, retreated $2.98 to $187.61 after its Equity Opportunities hedge fund lost 1.8 percent in the first week of September, extending the slide that led to last month's $3 billion cash injection.
RadioShack Corp. declined $1.56, or 6.6 percent, to $22.10 for the biggest drop in the S&P 500. Credit Suisse said the third-largest U.S. electronics chain's investment in the video- game business may reduce earnings.
Merrill, PHH
Merrill Lynch slumped $1.80 to $72.85. The securities firm has reduced staffing at mortgage lender First Franklin Financial Corp. ``to be in line with current business requirements,'' spokesman Bill Halldin said in a telephone interview. He declined to say how many people would be fired.
PHH Corp. tumbled $4.26, or 15 percent, to $24.24. The mortgage lender and vehicle-fleet manager, which agreed to be bought by General Electric Co. and Blackstone Group LP, said the sale may unravel after Blackstone failed to get $750 million in loans.
About 10 stocks declined for every three that rose on the NYSE.
Monsanto Co. added $1.94 to $75.44. The world's biggest seed producer said earnings in the year ended Aug. 31 rose more than expected because of Latin American corn-seed sales, tax benefits and higher prices for weed killer.
Out of 10 S&P industry groups, only energy producers gained as oil advanced to a record for a fourth day, reaching $80.70 a barrel in New York on signs the Fed will lower interest rates tomorrow. Exxon Mobil Corp., the world's biggest oil company, rose 59 cents to $89.26. Chevron Corp., the second-largest U.S. oil company, gained 28 cents to $90.93.
Newell Rubbermaid, Ford
Newell Rubbermaid Inc. added $2.26, or 8.8 percent, to $28.02 for the steepest gain in the S&P 500. The maker of Graco baby buggies and Rolodex organizers raised its full-year earnings and third-quarter sales forecasts on strength in its home and family and tools and hardware units, as well as benefits from foreign currency rates.
Ford Motor Co., the second-biggest U.S. automaker, gained 25 cents to $8.28. Bear Stearns & Co. lifted its recommendation on the stock to ``outperform'' from ``peer perform,'' saying the company may benefit from a renegotiated labor contract between General Motors Corp. and the United Auto Workers.
Investors also awaited earnings reports from brokerage firms this week. Bear Stearns Cos., Morgan Stanley and Lehman Brothers Holdings Inc. will probably report profit declines, according to the average analyst estimates from Bloomberg surveys, while Goldman Sachs may post a gain from selling a company.
``We expect a calm and steady week on the brokerage announcements,'' said David Darst, who manages $728 billion as chief investment strategist at Morgan Stanley Global Wealth Management in New York. ``The real story will take a few more quarters to unfold.''
Economy Watch
In economic reports, the pace of manufacturing in New York cooled in September. The New York Federal Reserve's general economic index fell to 14.7 from 25.1 in August, the bank said today. Economists in a Bloomberg News survey projected the index would drop to 18. Readings greater than zero signal expansion.
In Europe, the Dow Jones Stoxx 600 Index lost 1.5 percent. The Morgan Stanley Capital International Asia-Pacific Index retreated 0.5 percent.
The Russell 2000 Index, a benchmark for companies with a median market value of $644 million, dropped 1 percent to 775.81. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.6 to 14,839.45. Based on its decline, the value of stocks decreased by $110.2 billion.
In other markets, the yield on the 10-year Treasury note was little changed at 4.45 percent and the dollar was little changed against the euro.
-- With reporting by Carol Massar, Julie Hyman, Rachel Wehrspann, Adrienne Toscano and Michael Patterson in New York. Editor: M.Regan (crn).
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