Obama's pushback on banks sends stock lower again

NEW YORK - Stocks retreated Friday for a third straight day on fresh concerns about President Barack Obama's proposed restrictions on banks.

The market is extending losses that gave the Dow Jones industrial average its biggest two-day drop since June. Upbeat earnings from General Electric and McDonald's provided a positive note but weren't enough to keep major indicators out of the red.

Obama spooked the market Thursday after asking Congress for limits on how large big banks can be and to end some of the risky trading large financial companies have used in recent quarters to boost their profits.

"It appears to be a move to put some shackles on risk-takers," said Mitch Schlesinger, managing partner at FBB Capital Partners in Bethesda, Md.

Uncertainty over Obama's latest drive to regulate banks could push stocks into a new period of erratic trading. The wild swings in stock indexes and questions about the future of major U.S. banks brought reminders of the toughest days of the financial crises a year ago, which sent stocks cratering. The market bottomed last March and has been on a 10-month rally since then, which has recently been showing signs of petering out.

In midday trading, the Dow Jones industrial average fell 33.33, or 0.3 percent, to 10,356.55. The Standard & Poor's 500 index fell 4.43, or 0.4 percent, to 1,112.05, while the Nasdaq composite index declined 15.15, or 0.7 percent, to 2,250.55.

The Dow lost 213 points Thursday and 336 points, or 3.1 percent, during the past two trading sessions. The losses have erased all the early gains seen in 2010.

Stocks have posted sharp swings over the past week, with several of the downturns triggered by moves in China to cool its red-hot economy with measures such as reining in lending and stepping up regulatory oversight of that country's banks.

John Brady, a senior vice president of global interest rates at MF Global, said uncertainty surrounding the potential new U.S. banking regulations and China's own efforts to tame its economy have investors ratcheting down their exposure to risk.

In earnings news, General Electric Co. reported fourth-quarter profit that beat analyst expectations. The conglomerate also said it is seeing an increase in orders and a growing backlog for products and services, positive signs for the economy. McDonald's Corp. fourth-quarter sales and profit grew as its cheap fare drew in more customers looking for bargains.

GE shares rose 48 cents, or 3 percent, to $16.50, while McDonald's rose $1.02 to $64.22.

In recent months, the Dow would almost certainly be higher after two components of the index reported positive quarterly results. The fact that it's not spoke to a shift in the market's outlook for the worse, brought on by a combination of worries about a slowdown in China, uneven corporate earnings over the past week and now Obama's latest effort to clamp down on banks. Last week Obama proposed a levy on banks to replenish public bailout funds.

Google Inc. , meanwhile, also posted earnings that topped analyst estimates. However its shares fell in morning trading as revenue growth only matched expectations and, unlike its profit, didn't exceed forecasts. Google dropped $19.63, or 3.4 percent, to $563.35.

Other technology shares also weakened after analysts at Citi Investment Research slashed ratings on companies that manufacture equipment to make computer chips and semiconductors.

Declining stocks outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 490.9 million shares, compared with 502.6 million traded at the same point Thursday.

Bond prices dipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.62 percent from 3.59 percent late Thursday.

The dollar was mixed against other major currencies, while gold prices declined.

The Russell 2000 index of smaller companies rose 0.12, or less than 0.1 percent, to 628.48.

Overseas, Japan's Nikkei stock average fell 2.6 percent. Britain's FTSE 100 declined 0.5 percent, Germany's DAX index fell 0.8 percent, and France's CAC-40 dropped 1.1 percent.