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Updated from 1:36 p.m. EDT

Financial stocks tripped Friday on

recession talk and company-specific news, including some negative analyst calls.



Financial Sector Index recently lost 24.89 points, or 0.3%, to 9283 as a few of its regional-bank components were hit with KBW downgrades. In particular,

Central Pacific Financial

(CPF) - Get Free Report


First Horizon National

(FHN) - Get Free Report

shed 5.5% and 3.4%, respectively, on cuts to underperform.

KBW cited Central Pacific's construction-portfolio "credit issues" which could have a "less than favorable effect" on near-term earnings, though it believes the bank will ultimately pull through the currently tough operating environment. As for First Horizon, the analyst believes the "current real estate credit climate will hamper earnings power in the near future" even as it takes "positive steps" to position the bank for long-term growth.

Another member of the NYSE financial index,

Fifth Third Bancorp

(FITB) - Get Free Report

, said its tier 1 capital will decrease by an estimated $690 million after it buys back preferred stock from certain six-year holders on Dec. 27. The Cincinnati bank said it will still be "well-capitalized" per

Federal Reserve

guidelines. It also issued $575 million in tier 1 capital-qualifying trust preferred securities last month, which, it says, will mitigate the effects of the transaction.

But the bank's shares fell 1% to $33.88, helping to pressure the ailing KBW Bank Index to a 0.9% loss along with

Wells Fargo

(WFC) - Get Free Report

-- which slipped 1.1% after Friedman Billings cut its third-quarter income estimate -- and


(BBT) - Get Free Report


The latter, a Winston-Salem, N.C., bank, said today that it will buy Georgia insurer Sidney O. Smith for an unspecified sum. The deal should close in November. BB&T shares were off 60 cents, or 1.5%, to $40.39.


Freddie Mac

( FRE) retreated after reaching a

$50 million settlement with the

Securities and Exchange Commission

. The deal resolves charges that the McLean, Va., mortgage investor misled investors by manipulating its earnings through 2002 from as early as 1998. Shares closed down 1.6% to $59.01.

On the upside, San Francisco's

Luminent Mortgage Capital

( LUM) leapt 10.6% on a Deutsche Bank upgrade to hold from sell. The analyst said the troubled mortgage lender has boosted its liquidity enough to provide some relief from the credit crunch that so heavily battered its stock price this summer. Shares closed at $1.67.



(CNO) - Get Free Report

added 3.5% on a Friedman Billings upgrade to outperform, and fellow insurer

MF Global

( MF) said it will buy BrokerOne, an Australian futures broker. Terms were undisclosed, but Bermuda-based MF expects earnings accretion over the next year. Shares tacked on 58 cents at $29.