Wednesday, October 20, 2010

US STOCKS-Wall St drops as mortgage worries hit banks

(Reuters) - U.S. stocks posted their biggest loss in two months on Tuesday on fears banks might be on the hook for billions of dollars in souring mortgage bonds.

The afternoon selloff hit investors already reeling from an unexpected credit tightening by China and disappointing financial results from Apple (AAPL.O) and IBM (IBM.N).

The biggest scare came on news that Bank of America (BAC.N) and possibly others may be forced to take back billions of dollars in mortgages that should not have been bundled into bonds.

The broad selloff came on high volume in a pattern similar to last week's when fears over banks surfaced.

"It's reminding investors of what was the main impetus for the horrific selloff we had a few years ago," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago. "If you were recently struck by lightning, you are a little skittish when there is a thunderstorm."

Bank of America shares fell 4.4 percent to $11.80, their lowest close since June 2009, after a Bloomberg report, citing people familiar with the matter, said investors PIMCO and BlackRock, along with the New York Federal Reserve Bank, were seeking to force the lender to repurchase $47 billion in mortgage bonds. (more)

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