Wall Street slides on worries about financials and tech

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By Chuck Mikolajczak

NEW YORK (Reuters) - Stocks stumbled on Monday, weighed down by financials before quarterly results from Goldman Sachs and Morgan Stanley , along with weakness in tech stocks on consumer spending worries.

JPMorgan Chase & Co was the biggest drag on the Dow after Merrill Lynch cut the stock to an "underperform" rating and forecast a loss for the bank's fourth quarter.

Also weighing on sentiment was concern about the financial sector's exposure to potential losses related to investment manager Bernard Madoff, whom U.S. authorities have accused of masterminding a $50 billion fraud.

"It's a psychological blow to most investors to see such a destruction of wealth based on fraud," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. "That is probably still lingering in the market, based on a trust standpoint."

The Dow Jones industrial average <.DJI> fell 96.29 points, or 1.12 percent, to 8,533.39. The Standard & Poor's 500 Index <.SPX> dropped 14.66 points, or 1.67 percent, to 865.07. The Nasdaq Composite Index <.IXIC> slid 36.73 points, or 2.38 percent, to 1,503.99.

The S&P financial index <.GSPF> fell 4.2 percent, with JPMorgan's stock down 7.4 percent at $28.64.

Goldman Sachs Group Inc shed 2.5 percent to $66 ahead of its quarterly results scheduled for Tuesday, in which it is expected to post its first quarterly loss since going public in 1999. Morgan Stanley , due to report results on Wednesday, dropped 2 percent to $13.58.

Technology shares also pulled the market lower after Goldman Sachs cut its rating on Apple to "neutral" and removed the iPod maker from its conviction buy list, citing falling consumer demand for its products.

Apple's stock slid 4.6 percent to $93.79 on Nasdaq.

Oracle Corp also fell 2.8 percent to $16.37 while Microsoft shed 1.6 percent to $19.07, reflecting investors' anxiety about business and consumer demand for technology products in a weak economy.

An index of energy stocks slipped 0.5 percent after crude oil fell below $45 a barrel. When OPEC ministers meet on Wednesday, they may make their deepest oil supply cut ever. [ID:nLF483130]

Shares of General Motors and Ford also rose on hopes that a financial lifeline could still materialize, although the timing and size of any aid package from the government was still in question.

GM's stock rose 4.1 percent to $4.11 and Ford rose 3 percent to $3.13.

Economic data also gave investors more reasons for caution. A gauge of manufacturing in New York State hit a record low in December, while homebuilder sentiment remained at record lows for the month.

Investors also looked ahead to an interest-rate decision from the Federal Reserve on Tuesday. The U.S. central bank is expected to cut its benchmark fed funds rate to 0.5 percent from 1 percent in an effort to stimulate the sputtering U.S. economy.

The Dow Jones U.S. Home Construction Index <.DJUSHB> fell 5.3 percent a day before the U.S. Commerce Department is expected to report another monthly drop in housing starts.

(Editing by Jan Paschal)

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