U.S. Stocks Fall After Fed Cuts Benchmark Rate by Quarter Point

Dec. 11 (Bloomberg) -- U.S. stocks tumbled the most in a month as investors speculated the Federal Reserve's quarter- point interest-rate cut will fail to prevent a recession.

Bank of America Corp. and Citigroup Inc. led all 93 companies in the S&P 500 Financials Index lower, and homebuilder shares fell the most ever after the Fed said the housing slump is getting worse. Washington Mutual Inc., the largest U.S. savings and loan, posted its steepest drop in a month on plans to write down the value of its home-lending unit. Freddie Mac, the second-biggest mortgage-finance company, slid for a third day after forecasting a wider loss than analysts estimated.

The S&P 500 lost 38.31, or 2.5 percent, to 1,477.65. The Dow Jones Industrial Average retreated 294.26, or 2.1 percent, to 13,432.77. The Nasdaq Composite Index decreased 66.6, or 2.5 percent, to 2,652.35. Almost 14 stocks declined for every one that rose on the New York Stock Exchange. Treasuries rallied and the dollar weakened against the euro and yen.

``It should have been more aggressive,'' said Quincy Krosby, who helps manage $330 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``The market's instinctive reaction is that it's too little too late and that the Fed is behind the curve.''

Rate Bets

Some investors had expected the Fed to do more to preserve the economy's six-year expansion. Before the central bank's announcement, futures trading showed 36 percent odds of a half- point reduction to 4 percent, up from 28 percent yesterday. The central bank also reduced the discount rate it charges banks for direct loans by a quarter percentage point to 4.75 percent.

Wells Fargo & Co. Chairman Richard Kovacevich said in interview this morning he expected the Fed to cut its discount rate by as much as three-quarters of a point.

Bank of America fell $1.99 to $44.65. Citigroup tumbled $1.54 to $33.23. Wells Fargo lost $1.87 to $30.77. The S&P 500 Financials Index slumped 4.9 percent, the most since Nov. 7.

Citigroup named former Morgan Stanley President Vikram Pandit as chief executive officer before the Fed's decision was announced. Pandit, who takes over immediately, will try to help the largest U.S. bank recover from at least $9 billion of mortgage losses under predecessor Charles O. Prince.

Washington Mutual dropped $2.46 to $17.42. The company will slash its dividend by 73 percent, write down the value of its home-lending unit by $1.6 billion in the fourth quarter and cut about 6 percent of its workforce as mortgage-market losses increase.

Freddie Mac slid $3.73 to $31.31 after saying fourth- quarter results are not going to be better than a third-quarter loss of $2.02 billion, or $3.29 a share. Analysts in a Bloomberg survey had estimated a loss of about $1.27 a share, excluding some items. The company said it doesn't see a ``short-term quick fix'' to the housing market deterioration.