JPMorgan dropped 8.4 percent. Wells Fargo & Co. and Bank of America Corp. slumped more than 9.2 percent after Moody’s said it’s reviewing their ratings, while Citigroup slumped to a record low of 97 cents. General Motors Corp. plunged 15 percent after its auditor said the automaker may not survive. European stocks fell after Aviva Plc, the biggest U.K. insurer, reported a loss.

“You have to have stability in the banks for a sustainable rally,” said Dan Veru, who helps oversee $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. “We’re not there yet.”

The S&P 500 lost 3.4 percent to 688.86 at 11:40 a.m. in New York. The Dow Jones Industrial Average decreased 210.43 points, or 3.1 percent, to 6,665.41. Europe’s Dow Jones Stoxx 600 Index slumped 3.5 percent to 161.74. Treasuries rallied, driving the yield on 10-year notes down to 2.85 percent from 2.97 percent, and the U.S. dollar index climbed 0.7 percent.

Concern corporate defaults will rise, the deepening global recession and dividend cuts at companies from General Electric Co. to JPMorgan have dragged the S&P 500 to three consecutive weeks of declines, pushing the index down 23 percent this year. It has fallen 3 percent since Feb. 27.

$585 Billion Stimulus

Stocks rallied yesterday for the first time since Feb. 24 on speculation China will broaden efforts to boost growth and U.S. lawmakers will reach agreement on a plan to stem mortgage defaults. Chinese Premier Wen Jiabao said today the country’s 8 percent growth target for this year is within reach, indicating the government doesn’t see the need to increase a 4 trillion yuan ($585 billion) economic stimulus.

Financial companies in the S&P 500 lost 7.6 percent, the most among 10 industries. JPMorgan fell 8.4 percent to $17.69, Wells Fargo dropped 17 percent to $8 and Bank of America retreated 9.2 percent to $3.26. Citigroup lost 12 percent to $1 and earlier slumped to 97 cents.

JPMorgan, the largest U.S. bank by market value, had its ratings outlook cut by Moody’s to negative from stable. Moody’s said it will review the long-term debt ratings of Wells Fargo, the second-largest U.S. bank, and Bank of America, ranked third, on concern that higher credit costs may damage capital ratios.

GM slumped 15 percent to $1.86. The largest U.S. automaker said its auditors made a “going concern” ruling, meaning they are unsure the company will remain in business. GM also disclosed a “material weakness” in its accounting procedures.

‘Isn’t There’

Energy companies and metals producers retreated following the Chinese premier’s remarks. Exxon Mobil Corp., the largest company by market value, fell 3.7 percent to $63.23. Alcoa Inc., the biggest U.S. aluminum company, lost 8.8 percent to $5.69.

“The global economy is still decelerating and China’s stimulus plan that everyone was counting on to rally around isn’t there,” said Peter Kenny, a managing director of institutional sales at Knight Equity Markets in Jersey City, New Jersey. “The most optimistic participant is hoping that the market will hold water. No one’s expecting a rally.”

Moody’s projects defaults will more than triple this year and exceed the level during the Great Depression. Goldman Sachs Group Inc. economist Binit Patel forecast that the world economy will shrink 0.6 percent this year, three times faster than a prior forecast.

Dividend Cuts

AT&T Inc., DuPont Co. and Textron Inc. are among 20 non- financial companies most likely to cut dividends as the slumping economy forces them to conserve cash, according to JPMorgan. Earnings at the 466 companies in the S&P 500 that have reported since Jan. 12 dropped 58 percent on average, according to data compiled by Bloomberg.

“Sentiment is still very bad, nothing has improved,” said Sandro Rosa, an equity strategist at Clariden Leu in Zurich, which manages $120 billion. “We’ll have more bad news and the market takes every opportunity to go down. Economic numbers haven’t woken up any hopes.”

The highest pessimism on record among U.S. investors suggests the S&P 500 will rebound after sinking to a 12-year low this week. The American Association of Individual Investors said 70.27 percent of investors were bearish as of yesterday. That’s the highest reading since the index’s creation in 1987.

The AAII index measures sentiment on U.S. stocks for the next six months among individual investors. Its prior peak of 67 percent was set in October 1990, when the S&P 500 closed at 305.74. The stock benchmark then surged fivefold through 2000.

‘Closer to a Bounce’

“When emotions get to one extreme, you get a counter-trend move,” said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. “Today, it’s very much at an extreme. It tells you that you’re closer to a bounce than not.”

General Electric Co. rose 2.4 percent to $6.85. The company, which slashed its dividend 68 percent last week, said its finance until will be profitable this year.

Wal-Mart Stores Inc. gained 3.3 percent to $50.09. The world’s largest retailer boosted its annual dividend by 16 percent to $1.09 a share.

Steven Leuthold, whose Grizzly Short Fund makes money for investors by betting companies will fail, said yesterday he wouldn’t invest in his own fund now because the U.S. stock market is close to its bottom.

Leuthold, who helps manage $3.2 billion as founder of Minneapolis-based Leuthold Weeden Capital Management, told investors to keep money out of the Grizzly fund yesterday after it rose 74 percent in 2008. He joined Bill Fleckenstein, who shut a 13-year-old bearish fund in December, and Marc Faber, who covered bets against U.S. stocks.

 SOURCE: Bloomberg