Market falls as downgrades fuel recession fears

NEW YORK (Reuters) - Stocks declined on Monday after brokerages downgraded banks and credit card companies on signs consumers are falling behind on debt payments, suggesting yet another pillar of the economy is shaky.

The downgrades, combined with a report showing slower-than-expected factory orders, hurt economically sensitive sectors such as banks, home builders and retailers. Last week, the same groups had powered Wall Street's biggest weekly rally in five years.

American Express, whose stock fell nearly 4 percent, was a top drag on the Dow after UBS cut its rating on the shares to "sell," saying its outlook for a recession in the first half of 2008 would lead to higher levels of unemployment.

"These last few weeks have been very cyclical, and in my opinion it's too early to be cyclical because you're going to have some slower economic news that's going to continue for a while," said Scott Wren, senior equity strategist at A.G. Edwards & Sons Inc in New York.

The Dow Jones industrial average (.DJI) was down 108.03 points, or 0.85 percent, at 12,635.16. The Standard & Poor's 500 Index (.SPX) was down 14.60 points, or 1.05 percent, at 1,380.82. The Nasdaq Composite Index (.IXIC) was down 30.51 points, or 1.26 percent, at 2,382.85.

AmEx shares fell 3.9 percent to $47.66. UBS also cut its ratings on credit card issuers Capital One Financial Corp (COF.N), down 7.6 percent to $52.65, and Discover Financial Services (DFS.N), down 9 percent to $16.34.

Brokerages cut shares of Wells Fargo & Co. (WFC.N), the No. 2 U.S. mortgage lender, whose stock fell 6.7 percent to $31.39, and Wachovia Corp (WB.N), the fourth-largest U.S. bank, whose stock was down 8.3 percent at $35.53.

Blue-chip bank JPMorgan Chase (JPM.N) was the top drag on the Dow. The stock fell down 4.2 percent to $46.22.

Data showed new orders at U.S. factories rose at a slower-than-expected 2.3 percent rate last month. After stripping out the transportation sector, the gain was a modest 0.7 percent, adding to unease about the economy's outlook.

Shares of Google fell 4 percent to $495.43 and were the biggest drag on the Nasdaq.

Internet media company Yahoo Inc (YHOO.O), following software maker Microsoft Corp's (MSFT.O) $44 billion bid, would consider a business alliance with Web search company Google Inc (GOOG.O) as one way to rebuff the takeover proposal, a source familiar with Yahoo's strategy said on Sunday.

Yahoo stock was up 3.3 percent to $29.33.

Declining stocks outnumbered advancing ones by a ratio of about 3 to 2 on the New York Stock Exchange and by 4 to 3 on Nasdaq.

Trading was extremely light on the NYSE, with about 1.36 billion shares changing hands, well below last year's estimated daily average of 1.9 billion, while on Nasdaq, about 2.05 billion shares traded, compared with last year's daily average of 2.17 billion.

Traders said the New York Giants' Super Bowl win contributed to lighter volume, with some traders opting to take the day off.