Updated from 2:02 p.m. EDT

The sliding major indices and negative analyst research kicked financial stocks lower Wednesday as the market reeled from a 12.2% drop in the July pending-home sales index to 89.9, per the National Association of Realtors.

The

NYSE

Financial Sector Index pulled down 172.76 points, or 1.9%, to around 8,942.84, pressured by the housing data and a number of suffering mortgage concerns. Lender

IndyMac Bancorp

( IMB) fell 9.8%. Mortgage investors

Impac Mortgage

(IMH) - Get Report

and

Luminent Mortgage Capital

( LUM) fell 11.8% and 16.7%, respectively. Subprime lender

NovaStar Financial

( NFI) fell 13%.

Also pressuring the NYSE index were

Lehman Brothers

( LEH) and

Morgan Stanley

(MS) - Get Report

, which lost 3.7% and 2.1%, respectively, after both

had their third-quarter earnings estimates cut at Citigroup.

The analyst cited an expected decline in fixed-income-trading results and chopped down Lehman's per-share estimate by 55 cents to $1.40 a share. Morgan's estimate was lowered by 15 cents to $1.60.

Credit Suisse

(CS) - Get Report

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, meanwhile, was downgraded to equal-weight from overweight at Lehman, after which shares traded down 1.7% to close at $66.22.

Brookline Bancorp

(BRKL) - Get Report

, based in Massachusetts, slumped 3% on a Friedman Billings cut to market perform from outperform. Shares closed off 38 cents at $12.13.

The KBW Bank Index sank 1.9% to 104.79.

Among the sector's movers were

Radian Group

(RDN) - Get Report

and

MGIC Investment

(MTG) - Get Report

, after the companies

agreed to terminate their planned

stock-swap merger, which in February was worth $4.7 billion.

MGIC had said last month that it's

"not obligated" to complete the deal ultimately due to subprime woes at Radian -- an assertion with which the latter disagreed. Today the companies said it's in their communal best interest to remain independent, given "current market conditions" which have made the merger "significantly more challenging." They will also withdraw all outstanding

litigation.

Radian shares leapt more than 13% earlier in the day; it closed up 16 cents, or 0.9%, to $18.27. MGIC was up 1.4% earlier in the day but closed down 29 cents, or 1%, at $30.05.

Elsewhere,

Chicago Mercantile Exchange

(CME) - Get Report

announced a 78% year-over-year leap in daily August volume to an average of 14.9 million contracts a day. Shares of the commodities exchange tacked on 1% earlier in the day but closed down slightly at $564.50. Online broker

TradeStation

( TRAD) added 1.2% to close at $11.39 after saying its August daily average revenue trades soared 83% from last year to about 101,000.