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Tech, Financials Lead Stocks Lower

Bernanke sees a chance for economic improvement, but says downside risks remain.

Updated from 4:12 p.m. EST

Stocks in the U.S. closed well into the red Thursday, led downward by selling pressure on the technology sector and financial names.

The

Dow Jones Industrial Average

tumbled 175.26 points, or 1.4%, to 12,376.98. The

S&P 500

lost 18.35 points, or 1.34%, to 1348.86, and the

Nasdaq Composite

slid 41.39 points, or 1.74%, to 2332.54.

A decline of 3.5% in

Intel

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weighed on both the Dow and tech stocks. The move came as Goldman Sachs took the chipmaker off its conviction buy list. The Philadelphia Semiconductor Sector Index slid 2.8%.

Other well-known tech shares, including

Apple

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,

Nvidia

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,

Oracle

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and

SanDisk

(SNDK)

, also gave up ground.

Financial stocks were laggards as well, with the NYSE Financial Sector Index losing 1.9%, and the Amex Securities Broker/Dealer Index slumping 1.8%.

Bear Stearns

(BSC)

,

Citigroup

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,

Wachovia

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and

Wells Fargo

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(WFC) - Get Wells Fargo & Company Report

were all lower by 2.3% or more.

Among other subsector losers, the S&P Retail Index dropped nearly 3%, the Dow Jones Transportation Average eased 1.1%, and the Philadelphia Utility Sector Index decreased 1%.

Breadth was negative for the first time this week. About 3.44 billion shares changed hands on the

New York Stock Exchange

, with decliners beating advancers by a 3-to-1 margin. Volume on the Nasdaq reached 2.20 billion shares as losers topped winners 7 to 3.

The market was weaker from the morning, after

Federal Reserve

Chairman Ben Bernanke told a U.S. Senate committee on banking and housing that although his outlook contains an improving picture, "it is important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further."

Referring to the central bank's recent easing program, Bernanke noted that the Fed's monetary policy works with a lag, and that changes "must be determined in light of the medium-term forecast for real activity and inflation, as well as the risks to that forecast."

"Markets seem to have expected something more dovish but this brief testimony is a holding job ahead of the monetary policy testimony," said Ian Shepherdson, chief economist with High Frequency Economics. "

However, the Fed won't wait to see the whites of the eyes of a recession before easing again."

Treasury Secretary Henry Paulson and SEC Chairman Christopher Cox also spoke before the committee.

Meanwhile, a congressional subcommittee on capital markets heard testimony on bond insurers. New York Governor Eliot Spitzer outlined the potential disaster to the U.S. economy should the so-called monolines face downgrades. Executives from

Ambac

(ABK)

and

MBIA

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were also present.

MBIA Chief Financial Officer Charles Chaplin told legislators his company will survive the mortgage crisis and that both a bailout for the industry and additional federal regulation isn't needed.

Bond insurers are in danger of losing their coveted triple-A ratings, and Fitch has already taken some action in that regard, which would prevent them from raising new capital. Late in the day, selling picked up as Moody's lowered its rating on closely held bond insurer Financial Guarantee Insurance to A3 from triple-A.

All of this comes at the same time that New York State Insurance Superintendent Eric Dinallo is mulling a split-up of the insurers as a potential strategy to protect policyholders and help maintain the ratings.

Despite all the headlines, MBIA rose 8.4% to close at $12.62, and Ambac surged 12.4% to $10.53.

Traders were also examining the latest round of economic data. The Census Bureau said the U.S. trade deficit fell to $58.8 billion in December from $63.1 billion in November, which was better than economists expected. Separately, the Labor Department said initial jobless claims dropped to 348,000 from 357,000, in line with consensus.

Earnings reports were also in focus.

Comcast

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,

Daimler AG

(DAI)

and auto-parts maker

Visteon

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posted better-than-expected quarterly results.

Away from stocks, Treasury prices were falling hard. The 10-year note was down 19/32 in price to yield 3.80%. The 30-year bond dropped 1-18/32 in price, yielding 4.64%.

Commodity prices turned higher. Crude oil jumped $2.19 to end the day at $95.46 a barrel. Gold futures were up 60 cents to close at $910.80 an ounce.

Overseas markets were mostly higher. Hong Kong's Hang Seng added 3.7% and Japan's Nikkei 225 jumped 4.3%. Among European bourses, London's FTSE 100 and Germany's Xetra Dax were holding the unchanged mark.