Dow Stages Recovery, but Falls Shy of 10,000

Historically, said Pado, a tough Friday for stocks can lead to a worse Monday, followed by a recovery on Tuesday. "You get people reading the paper and just calling in their redemptions over the weekend," which results in hedge funds and mutual funds selling out of equities to raise capital.

"Now everybody's talking about we're back down to the 2004 lows, but the reality is that we're also at the point where, in January of 1998, the market first broke out to the upside." That means that the last decade of gains has been wiped out, said Pado. "There's some disillusion in the equity markets as a result of that."

In the banking sector, Wells Fargo (WFC Quote) said it intended to go ahead with its purchase of Wachovia (WB Quote). Wells Fargo said an appeals court vacated a ruling that extended an exclusivity agreement between Citigroup (C Quote) and Wachovia. Later during the session, Citi announced a $60 billion lawsuit against Wells Fargo.

Early Monday, analysts at both Keefe Bruyette and Friedman Billings upgraded Wells Fargo to market perform from underperform.

Wells Fargo lost 1.3% to $34.11, Citi dropped 5.1% to $17.41. Wachovia sold down 6.9% to $5.78.

On the home-loan front, Bank of America (BAC Quote) announced it would modify about 400,000 mortgages to help borrowers who had taken out loans from Countrywide Financial, which BofA acquired on July 1. BofA shares lost 6.6% to $32.22.

Insurance company Hartford Financial (HIG Quote) said it garnered a $2.5 billion investment from Allianz (AZ Quote), is reducing its dividend and will register a third-quarter loss. Hartford gained 13% to $30.90, while Allianz dropped 11% to $12.19.

Money markets were showing strain. Bloomberg.com said three-month Libor, a measure of the cost of borrowing among banks, was at 4.29%, near a high last seen in January. Overnight Libor climbed to 2.37% from 2% Friday.