Updated from 1:06 p.m. EDT

The financial sector joined the sliding broader market for the third straight session Thursday, largely scooping just under the major indices. Weighing heavily was

Security Capital Assurance

(SCA) - Get Report

.

The Bermuda-based insurer slid 3.6% to $30.61 in unusually active trading on news that its parent,

XL Capital

(XL) - Get Report

, is offering 9.68 million SCA shares at $31 apiece, thereby slashing its stake in SCA to roughly 47.5% from 63%. If underwriters fully exercise their 1.45-million-share purchase option, XL will own just 45.3% of the company.

SCA priced the shares postbell Wednesday after filing for the offering two weeks ago. XL closed Thursday off 2.7% at $80.49.

The

NYSE

Financial Sector Index, which harbors both SCA and XL, slumped 174.24 points, or 1.8%, to 9651.73. The KBW Bank Index fared a bit better but was still down 1.3% to 113.87.

Also suffering were both

PNC Financial

(PNC) - Get Report

and

Yardville National Bancorp

( YANB) after the former agreed to buy the latter for $35 a share in stock and cash -- a slight discount to Yardville's latest closing price. The $403 million transaction will likely close in the fourth quarter and should be accretive to PNC's per-share earnings in 2008.

Pittsburgh-based PNC lately lost 0.7% to $71.32; Yardville, of New Jersey, slumped 4.5% to $34.15.

H&R Block

(HRB) - Get Report

stumbled 3.8% at $22.06 even though the Kansas City, Mo., tax preparer raised next quarter's dividend by 5.6% to 14.25 cents a share, to be paid in October; and mortgage lender

Fannie Mae

( FNM) slipped 61 cents to $63.44 despite a Friedman Billings upgrade to outperform. The analyst cited improving option-adjusted spreads, among other things.

A couple of financial stocks, however, benefited from positive analyst calls. Pennsylvania's

Susquehanna Bancshares

(SUSQ)

gained 3% to $22.26 after Stifel Nicolaus raised its rating to hold from sell. Meanwhile, Keefe Bruyette upped

CoBiz

(COBZ) - Get Report

to outperform from market perform. Shares added 2 cents to $18.17.