Bad vibes at Merrill Lynch ( MER) and a depressing home-sales report pervaded the financial sector to render Wednesday's session a decidedly bearish one. Merrill posted a third-quarter loss of $2.85 a share from continuing operations, or $2.31 billion, to reverse last year's $1.97-per-share profit (excluding items) -- much worse than the up-to-50-cents prediction the New York broker originally issued earlier this month. Revenue took a 94% nose dive from last year to $577 million, and the firm recorded $7.9 billion in writedowns from its positions in collateral debt obligations and subprime mortgages. The latter item is about 76% higher than the initial projection. Thomson Financial's estimates called for a loss of 45 cents a share on revenue of $3.25 billion. Standard & Poor's lowered Merrill's counterparty credit rating to A-plus from AA-minus on the heels of these results, and Fitch Ratings also downgraded the broker. Shares tumbled 5.81% to $63.22. That dragged on the NYSE Financial Sector Index, which fell 77.52 points, or 0.85%, to 9,085.15. The KBW Bank Index was up 0.58% to 101.77, though, despite losses at National City ( NCC), whose profit was also cut by credit-market woes. National's third-quarter earnings fell 70% from last year to 18 cents a share, eroded significantly by a loss of 25 cents a share at its mortgage banking business. Analysts sought 32-cent earnings, excluding special items. Shares of the Cleveland bank sank 89 cents, or 3.72%, to $23.02.