Banks and profit worry sink stocks on Inauguaration Day

NEW YORK (Reuters) - Wall Street ushered in the Barack Obama presidency with a record Inauguration Day drop on Tuesday amid fresh signs the global bank crisis was far from over.

High expectations for details on how the new administration would address the growing banking crisis and faltering economy were dampened after the inauguration speech concluded with little new information to digest.

State Street Corp , the world's largest institutional money manager, spooked investors about what is considered one of the safest areas in banking when it said it had a $6.3 billion unrealized loss in its investment portfolio and lowered its outlook. Its shares plunged 59 percent to $14.89.

"Stocks are getting crushed because of the never-ending tragedy that has fallen upon the banking sector," said Tom Sowanick, chief investment officer of Clearbrook Financial LLC in Princeton, New Jersey.

The Dow Jones industrial average <.DJI> dropped 332.13 points, or 4.01 percent, to 7,949.09. The Standard & Poor's 500 Index <.SPX> slid 44.90 points, or 5.28 percent, to 805.22. The Nasdaq Composite Index <.IXIC> tumbled 88.47 points, or 5.78 percent, to 1,440.86.

Since Obama won the election in November, Wall Street has been betting he will put plans in place to help stabilize the sliding economy and stem rising unemployment.

"I think the expectations were over the top to begin with," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco. "When you have that kind of expectation, you're going to get disappointed."

The negative tone for the financial sector was set in Britain by the Royal Bank of Scotland , which reported the biggest loss in British corporate history on Monday, when U.S. markets were closed for the Martin Luther King holiday.

The news sparked concerns about the global banking sector and hurt shares of financials, including JPMorgan Chase & Co , which was the Dow's top drag.

The KBW index of banking shares <.BKX> plunged nearly 20 percent to 25.34, its lowest level since 1995. The S&P Financial index <.GSPF> fell almost 17 percent to 108.33, its lowest level in 14 years.

Underscoring the widespread selling, the Chicago Board Options Exchange Volatility index <.VIX>, which is Wall Street's favorite barometer of fear, shot up 22.9 percent, its largest percentage gain since October 22, when it rose more than 31 percent.

Although the S&P 500 has rebounded from its November 21 intraday low, the broad index has fallen 10.9 percent this year on worries about the deepening global recession.

Technology shares were pulled down by expectations of poor quarterly results from big-cap tech companies, including International Business Machines Corp .

Big-cap tech companies also got hurt by a rise in the dollar, which makes it difficult for overseas consumers to buy their products, said Robert Francello, head of equity trading for Apex Capital hedge fund in San Francisco.

IBM shed 3.5 percent to $81.98 on the New York Stock Exchange before quarterly results, which were expected after the bell.

In after-hours trading, IBM's stock jumped almost 5 percent to $85.98 after its fourth-quarter profit beat Wall Street's expectations.

During the regular session, though, shares of Apple slid 5 percent to $78.20, and Microsoft shed 6.2 percent to $18.48, in Nasdaq trading; both are also expected to post quarterly results later this week.

Shares of Intel , the world's largest chip maker,

fell 6.4 percent to $12.86 on Nasdaq after the company cut the price of some processors by as much as 48 percent.

Trading volume was active on the New York Stock Exchange, with about 1.72 billion shares changing hands, above last year's estimated daily average of roughly 1.49 billion, while on Nasdaq, about 2.02 billion shares traded, below last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by almost nine to one, while on the Nasdaq, about six stocks fell for every one that rose.

(Editing by Jan Paschal)

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