Stocks stumble on financials and techs

NEW YORK (Reuters) - U.S. stocks stumbled on Monday, pulled down by big banks ahead of quarterly results from Goldman Sachs and Morgan Stanley and tech companies hurt by a drop in consumer spending.

JPMorgan Chase & Co was the Dow's biggest drag after Merrill Lynch downgraded the bank's stock and forecast a fourth-quarter loss.

There was also continued concern about financials' possible exposure to funds managed by Wall Street trader Bernard Madoff, who authorities accuse of defrauding investors of $50 billion.

"If you throw in what's happening with Madoff, it has people concerned and more people say, 'I'm going to the sidelines'," said Kurt Brunner, portfolio manager, Swarthmore Group in Philadelphia, Pennsylvania.

"The whole risk aversion hasn't disappeared."

Technology shares were another drag 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 stock tumbled 5.1 percent to $93.22 after the cut.

The Dow Jones industrial average <.DJI> was down 123.37 points, or 1.43 percent, at 8,506.31. The Standard & Poor's 500 Index <.SPX> was down 15.58 points, or 1.77 percent, at 864.15. The Nasdaq Composite Index <.IXIC> was down 35.72 points, or 2.32 percent, at 1,505.00.

With holiday shopping in full swing, concerns over consumer demand spurred investors to sell off tech and telecom shares. In addition to Apple, Oracle Corp also shed points, falling 3.6 percent to $16.24, as did online retailer Amazon.com , which fell 5.4 percent to $48.46.

Investor sentiment was also hurt by continued fallout from scandal surrounding Madoff. More banks revealed exposure, including Royal Bank of Scotland and Man Group .

The S&P financial index <.GSPF> fell nearly 4 percent, with JPMorgan falling 7.4 percent to $28.65. Goldman Sachs Group Inc fell 3.3 percent to $65.50 ahead of results expected on Tuesday in which it is expected to post its first quarterly loss since going public in 1999.

Morgan Stanley , which also reports results this week, shed 2 percent at $13.57.

One bright spot was the energy sector, which rose after a jump in crude oil to above $50 a barrel ahead of Wednesday's OPEC meeting at which ministers may make their deepest oil supply cut ever.

Shares of General Motors and Ford also rose on hopes that a financial lifeline could still materialize, uncertainty on the timing and shape of a government aid package still lingered.

GM stock rose 5.1 percent to $4.14 and Ford rose 3.3 percent to $3.14.

Investors were also looking ahead to an interest rate decision from the Federal Reserve on Tuesday, with expectations that the Fed -- the U.S. central bank -- will further cut rates at its regularly scheduled monetary policy meeting in an effort to push more money into the sputtering U.S. economy.

Still, shares of housing and building companies companies fell sharply, after Developers Diversified Realty Corp , which owns and manages shopping centers, said it had not yet reached an agreement to sell 13 assets.

Diversified's shares slumped 16.8 percent to $4.73.

The Dow Jones U.S. Home Construction Index <.DJUSHB> slumped nearly 7 percent a day before the U.S. Commerce Department is expected to report another monthly drop in housing starts.

(Additional reporting by Leah Schnurr; Editing by James Dalgleish)