Credit Worries Wallop Stocks

However, it wasn't all bad, despite the pullback. AT&T (T Quote) was better than expected on the profit line, as were Lockheed Martin (LMT Quote) and CME (CME Quote). While AT&T and CME declined, Lockheed Martin shot higher by 3.6% to $103.09.

British oil major BP (BP Quote) said earnings rose 1.5%, and Eli Lilly (LLY Quote) exceeded estimates and lifted its projections. BP dipped 2.9% to $72.30, while Eli Lilly finished the day unchanged at $57.17.

Pepsi (PEP Quote), EMC (EMC Quote) and McGraw-Hill (MHP Quote) were also better than expected, as were UAL (UAUA Quote) and Northrop Grumman (NOC Quote). UAL was the only name in the group to finish with gains, ending higher by 4.2% for the session.

Dow stock McDonald's (MCD Quote) posted only its second-ever quarterly loss. Excluding items, the restaurant chain matched the forecast for a profit of 71 cents a share. Shares slipped 95 cents, or 1.8%, to finish at $51.55.

On the research front, Citigroup upgraded Wachovia (WB Quote) to buy from hold, citing valuation. Still, shares closed lower by 41 cents, or 0.8%, to $48.41.

Among downgrades, Jefferies cut both United Rentals (URI Quote) and GlobalSantaFe (GSF Quote) to hold from buy. United Rentals was off by 56 cents, or 1.7%, to $32.42. GlobalSantaFe ended down 73 cents, or 0.9%, to $77.60.

On Monday, both stocks made M&A headlines and gave the major averages a boost. Transocean (RIG Quote) said it will combine with GlobalSantaFe to form a driller with an enterprise value of $53 billion. Private-equity firm Cerberus said it will acquire United Rentals for $2.83 billion.