Spending Fears Spank Stocks

American Express was the worst performer on the Dow, falling $4.92, or 10.1%, to $44.

"This decline was basically about American Express, in that we may have a new problem in credit cards to go along with housing and subprime mortgage problems," said Paul Mendelsohn, chief investment strategist with Windham Financial. "All the fear we felt today isn't completely reflected in the trading."

Another Dow loser was McDonald's (MCD Quote), which shed 6.6% to $54.32 as Friedman Billings said the hamburger chain's stock is fairly priced and predicted that domestic comparable-store sales could slow. In addition, an independent analyst circulated a report indicating that franchisees reported particularly slow growth in December.

Tiffany (TIF Quote) also added to spending concerns, reporting weaker-than-expected holiday sales in the U.S. and trimming its profit targets. Shares tumbled 11.2% to $35.80.

Notably weak sectors included retailers and airlines, who slid 3.2% and 3.7%, respectively. Semiconductors lost 2.4%.

Meanwhile, a number of financials that have been punished by heavy shorting in recent months appeared to rally on the hopes that salvation might in fact exist, considering Bank of America (BAC Quote) has agreed to take over struggling mortgage writer Countrywide Financial (CFC Quote).

MBIA (MBI Quote) jumped 17.6%, Ambac (ABK Quote) were up 12%, CIT (CIT Quote) added 8.9%, and Washington Mutual (WM Quote) was better by 3.7%.

Merrill Lynch (MER Quote) rose 5.1% to close at $54.69 even though The New York Times reported that the broker will post a larger-than-expected writedown of $15 billion when it reports earnings next week. Shares of Merrill had been down earlier.