Economic data drag stocks down

Stocks tumbled Tuesday on downbeat economic data and another alarm raised about banks’ credit woes. The Dow Jones industrial average lost more than 100 points.

The government reported a 3.3% decline in May home construction and a 1.3% slip in building permits -- signs of persistent weakness in the struggling housing market. Another report showed a 0.2% fall in industrial output in May after a 0.7% drop in April.

In addition, the Labor Department’s index of producer prices jumped 1.4% in May -- the largest increase since November.

The core producer price index, which strips out often-volatile food and energy prices, rose a mild 0.2%. But Wall Street remains concerned that companies are having to swallow ballooning costs -- and may soon be forced to pass them on to already strapped customers. Although oil futures fell to about $134 a barrel Tuesday, they remained near record levels.

Meanwhile, analysts at Goldman Sachs issued a downbeat report on the banking industry. The report estimates that credit losses from deterioration in the mortgage and lending markets will not peak until early 2009, and that U.S. banks, having already raised about $120 billion in capital, will need to raise an additional $65 billion.

“We’re back in the mode where people are guessing how many more billions of financial institution write-offs there are going to be,” said Scott Wren, equity strategist for Wachovia Securities.

The Dow slumped 108.78 points, or 0.9%, to 12,160.30.

The Standard & Poor’s 500 index fell 9.21 points, or 0.7%, to 1,350.93, while the Nasdaq composite index fell 17.05 points, or 0.7%, to 2,457.73.

The Russell 2,000 index of smaller companies dropped 4.17 points, or 0.6%, to 736.57.

Decliners outnumbered advancers by about 3 to 2 on the New York Stock Exchange.

Government bond yields fell along with stocks. The yield on the benchmark 10-year Treasury note sank to 4.2% from 4.27% late Monday.

Oil futures fell 60 cents to settle at $134.01 a barrel. The dollar lost ground against most other major currencies, while gold prices rose.

The Goldman report helped send bank stocks in the S&P; 500 down 4.2% as a group. The index’s 90 financial stocks lost 2.9% on average as 87 of them retreated.

The worst-performing stocks among the 30 Dow companies were financial firms: American International Group, American Express and Bank of America.

AIG fell $1.73, or 5.1%, to $32.28, as A.M. Best Co. cut its financial strength ratings on the insurer, saying AIG’s decision to replace its chief executive suggested a “deeper level of systemic challenges facing AIG.”

American Express slumped $1.92, or 4.3%, to $42.76. Bank of America lost $1.08, or 3.6%, to $29.24.

Even Goldman Sachs Group, which Tuesday posted a better-than-expected profit of $2.05 billion for its second quarter, fell along with the rest of the financial sector, sliding $2.65, or 1.5%, to $179.44.

Shares of regional banks were hit especially hard.

Zions Bancorp tumbled $3.79, or 10%, to $33.37 for the steepest decline in the S&P; 500. The company said in a filing that weakness in Southwest residential construction and land values was “expected to persist into 2009.”

Marshall & Ilsley, Wisconsin’s biggest bank, fell $1, or 5.2%, to $18.21, a seven-year low.

The housing reports led 13 of 15 home builders in S&P; indexes down for the day. Lennar fell 63 cents, or 4%, to $15.28. KB Home fell 66 cents, or 3.5%, to $18.34.

In other market highlights:

* Wal-Mart Stores trimmed its capital spending forecast for fiscal 2009, saying it planned to build fewer so-called supercenters because of the U.S. economy’s slowdown. The stock, a Dow component, declined 62 cents to $58.69.

* Overseas, key stock indexes rose 1.2% in Britain, 1% in Germany and 0.6% in France. Shares fell slightly in Japan.