Updated from 12:38 p.m. EDT with new stock prices

Exchange-traded funds tracking the financial sector were the worst performers of a sharply lower session Thursday, following an analyst downgrade of Citigroup ( C)

CIBC World Markets cut its rating on Citi to sector underperform from sector perform, citing the possibility of a huge capital shortfall. Shares of Citigroup plummeted 6.9%, and Morgan Stanley ( MS), Bear Stearns ( BSC), Merrill Lynch ( MER) and Lehman Brothers ( LEH) shed 4% or more.

The Ultra Financials ProShares ( UYG) declined by $4.51, or 8.2%, to $50.50. The KBW Regional Banking ( KRE) was lower by $2.52, or 6%, to $39.58. The PowerShares Dynamic Banking ( PJB) was recently down $1.17, or 5.5%, to $20.14.

Homebuilders were also hit by selling. Meritage Homes ( MTH), Hovnanian ( HOV), Lennar ( LEN), Centex ( CTX) and Beazer Homes ( BZH) all dropped 4% or more.

The iShares Dow Jones U.S. Home Construction ( ITB) sank by $1.01, or 4.8% to $19.88. The SPDR S&P Homebuilders ( XHB) was off 97 cents, or 4.4%, to $21.20.

Bundled securities following Asia markets were also lower during the current session. Overnight, China's CSI 300 Index declined 1.5%, and indices in India, Taiwan and Thailand also finished with losses.

The SPDR S&P Emerging Asia Pacific ( GMF) was recently down $4.87, or 4.8%, to $97.75. The iShares MSCI Taiwan Index ( EWT) was lower by 87 cents, or 4.8%, to $17.28. The SPDR S&P China ( GXC) eased $5.28, or 4.7%, to $107.92.

On the other hand, Treasury-related ETFs were among few winners of the day, as traders poured money into the so-called safe haven of bonds. Recently, the 10-year note was rallying 25/32 in price, cutting the yield to 4.37%. The 30-year bond was adding 1-15/32 in price, yielding 4.66%.

The iShares Lehman 20+ Year Treasury Bond ( TLT) rose $1.38, or 1.5%, to $90.96. The SPDR Lehman Long Term Treasury ( TLO) was up 40 cents, or 0.8%, to $52.49. The iShares Lehman 10-20 Year Treasury Bond ( TLH) was adding 60 cents, or 0.6%, to $102.80.