Bank woes send Wall Street lower

The major US banks took a beating on fears that the mishandling of tens of thousands of foreclosure documents could weigh on mortgage earnings.

Shares in Bank of America slumped 5.2 percent, Wells Fargo stocks dropped 4.2 percent, Citigroup shares dove 4.5 percent and JPMorgan Chase's shares lost 2.8 percent.

On Wednesday, attorneys general from all 50 states agreed to join forces to investigate mortgage lenders' foreclosure practices, after major banks moved to freeze foreclosures.

"Uncertainty created by foreclosure suspensions might delay the recovery in bank lending to both businesses and households," said analyst Chris Lafakis of Moody's Economy.com.

JPMorgan Chase on Wednesday posted stronger than expected quarterly earnings with profits rising 23 percent from last year to $4.4 billion. Citigroup will release its earnings next Monday.

Even so, the blue-chip Dow Jones Industrial Average slipped 1.51 points (0.01 percent) to 11,094.57 points, and the broader S&P 500 index was down 4.29 points (0.36 percent) at 1,173.81 points.

The tech-rich Nasdaq composite index fell 5.85 points (0.24 percent) to 2,435.38.

One hour before the markets opened, a string of economic data painted a mixed, though mostly negative, picture of current economic conditions.

The US trade deficit jumped to $46.3 billion in August as the gap with China hit a new record high, according to the Commerce Department.

The growth in imports nevertheless indicates that retailers are stocking up in expectation of an increase in sales.

At the same time, rising food and energy prices pushed up inflation at the wholesale level for the third month in a row in August, by 0.4 percent.

New claims for unemployment benefits rose by 13,000 last week, to 462,000, well above the 450,000 level expected by economists.

The previous week's claims figure was revised upward to 449,000, from 445,000.

The latest data bolstered expectations on Wall Street for the Federal Reserve to resume major asset purchases in a bid to boost the weak economic recovery, in what is known as quantitative easing.

"Losses are coming even as an unexpected increase in US weekly initial jobless claims, a hotter-than-forecast read on wholesale inflation, and a wider-than-anticipated trade deficit, kept elevated expectations of further Fed stimulus efforts intact," said analysts at Charles Schwab.

In corporate news, Internet search engine giant Google reported that its quarterly net profit soared to $2.17 billion compared to 1.64 in the same period in 2009, rising on the back of its thriving Internet advertising business.

Google's revenues for the quarter ended on September 20 reached $7.29 billion, an increase of 23 percent from last year.

Rival Yahoo! shares soared 4.46 percent on reports that several companies, including AOL, are looking into buying out the Internet search engine company.

The bond market was lower.

The yield on the 10-year US Treasury bond rose to 2.50 percent from 2.43 on Wednesday, while that on the 30-year bond was up to 3.90 percent from 3.83 percent. Bond yield and prices move in opposite directions.