US STOCKS-Wall St sags as foreclosure mess hits bank shares

* Banks slide on worries about nationwide mortgage probe
* Initial jobless claims rise more than expected
* Yahoo shares climb, source says PE interest in buying
* Dow off 0.3 pct, S&P down 0.6 pct, Nasdaq off 0.4 pct
* For up-to-the-minute market news see [STXNEWS/US]
(Updates to midday, changes byline)

By Ryan Vlastelica

NEW YORK, Oct 14 (BestGrowthStock) – Bank shares led the Dow and
the S&P 500 lower on Thursday, reflecting investors’ fears of
how a nationwide probe into the mortgage industry’s foreclosure
practices might affect earnings.

JPMorgan Chase & Co (JPM.N: ) and Bank of America (BAC.N: )
ranked as the two heaviest weights on the Dow, while Bank of
America alone was the S&P 500’s fifth-biggest percentage
decliner. An S&P index of financial services shares (.GSPF: )
slid 2.3 percent.

But the U.S. dollar’s slide limited stocks’ losses.

New claims for jobless benefits unexpectedly rose 13,000 in
the latest week. Though this data was yet another reminder that
the labor market remains weak, it reinforced the view that the
Federal Reserve will pump more money into the sluggish economy
in another round of quantitative easing. For details, see
[ID:nN14277059]

The KBW bank index (.BKX: ) tumbled 3.6 percent on increasing
worries that a joint investigation into home foreclosure
procedures by attorneys general from all 50 U.S. states would
cause uncertainty and threaten the recovery of the fragile
housing market. [ID:nN14114592]

“Today is really about banks and the jobless claims on one
hand, and the dollar on the other,” said Jeffrey Friedman,
senior market strategist at Lind-Waldock in Chicago.

“The foreclosure issue will weigh on us until we see a
bottoming in the housing market, and right now, we don’t know
what kind of financial obligations are possible for banks.”

Every component of the KBW bank index was in negative
territory. Bank of America Corp (BAC.N: ) lost 5.8 percent to
$12.52. JPMorgan Chase & Co (JPM.N: ) slid 3.1 percent to
$38.62.

The Dow Jones industrial average (.DJI: ) dropped 36.32
points, or 0.33 percent, to 11,059.76. The Standard & Poor’s
500 Index (.SPX: ) shed 6.89 points, or 0.58 percent, at
1,171.21. The Nasdaq Composite Index (.IXIC: ) slipped 10.06
points, or 0.41 percent, at 2,431.17.

The stock market benefited as the dollar fell to a 2010 low
against a basket of major currencies (.DXY: ) after Singapore
expanded its currency trading band, driving the Singapore
dollar to a record high. The prospect of additional Fed
stimulus has created an inverse correlation between the dollar
and stocks, with a drop in the greenback sparking a move into
equities. [ID:nN14110553]

After an 11.7 percent rise in the benchmark S&P 500 since
Sept. 1, short-term momentum indicators have begun to show
overbought conditions.

The rally has also brought out some broad bearish bets in
the options market. Trading in index ETFs was above normal
Wednesday, with about 3.88 million puts and 2.90 million calls
changing hands across all products.

Google Inc (Read more about Google Stock Analysis) (GOOG.O: ) shares slipped 0.5 percent to $540.47
and helped pressure the Nasdaq as investors await the release
of Google’s earnings after the closing bell. Traders in Google
options looked they were pricing in a potential post-earnings
move of just over 4 percent in the stock’s price, which is down
from the average swing of 6 percent over the past four
quarters. [ID;nN14104358]

But a bright spot was provided by Yahoo Inc (YHOO.O: ), up
3.4 at $15.77 after a source said that several private equity
firms had approached Internet and media companies, including
News Corp (NWSA.O: ) and AOL Inc (AOL.N: ), to gauge their interest
in buying the company. [ID:nN13281610]

Safeway Inc (SWY.N: ) rose 1 percent to $21.54 after the
grocery store operator reported adjusted third-quarter earnings
that beat expectations.

But shares of industrial distributor WW Grainger Inc
(GWW.N: ) shed 3.1 percent to $121.40 after it forecast a
moderation in its fourth-quarter organic revenue growth.
[ID:nN14219958] and [ID:nSGE69D0FX]
(Reporting by Ryan Vlastelica; Additional reporting by Doris
Frankel; Editing by Jan Paschal)

US STOCKS-Wall St sags as foreclosure mess hits bank shares