Stocks on Wall Street Continue Sliding

Updated from 9:39 a.m. EST

Stocks on Wall Street were in a slump Tuesday morning, as financial firms were working to accommodate strains on homeowners, U.S. automakers fumbled for answers to a stark business outlook and corporate earnings statements remained lackluster.

The Dow Jones Industrial Average lost 237 points to 8633, and the S&P 500 fell 26 points to 893. The Nasdaq gave back 40 points to 1577.

Among stocks in the news, Citigroup ( C) said it would alter terms for mortgages to avoid foreclosure proceedings on as much as $20 billion in at-risk home loans. Last Friday, JPMorgan Chase ( JPM) announced a similar mortgage-refinance program, covering $110 billion in loans.

Bloomberg also reported that government-controlled mortgage companies Fannie Mae ( FNM) and Freddie Mac ( FRE) were planning similar mortgage-restructuring initiatives.

The decision by big banks to refinance mortgages is about a year overdue, said Michael Church, portfolio manager at Church Capital. Although it's much cheaper for banks when they avoid foreclosing on homes, securitization of mortgages has made it difficult to find out who the end-borrowers and the end-lenders are. "With things on a massive scale like this, I'm not surprised it has taken a year," he said.

Meanwhile, credit card company American Express ( AXP) got the go-ahead from the Federal Reserve to turn itself into a bank holding company. Such a move would allow American Express to build a deposit base and secure Fed funding.

Goldman Sachs ( GS) and Morgan Stanley ( MS) had earlier this year successfully petitioned the Fed for bank holding company status.

Separately, the Los Angeles Times reported that Goldman Sachs had been encouraging its clients to bet against California bonds even as it was collecting fees to help California sell the same bonds.

Traders were also checking the automotive sector's vital signs. On Monday, President-elect Obama met with President Bush and suggested that the government offer assistance to the ailing industry. Obama's petition followed a request by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid to expand the $700 billion Troubled Asset Relief Program to include automakers.

General Motors ( GM) has lately shown signs that it needs assistance. Late Monday, the carmaker said it would lay off 1,900 factory workers. The announcement followed GM's report of a $2.5 billion quarterly loss on Friday and a Deutsche Bank analyst report targeting GM's stock value at $0.

"It's not going to be pretty, but they need to change their business," said Church. He said a major problem is that consumers aren't excited about buying domestic cars. "They should be on the phone with Apple CEO Steve Jobs saying, 'give me your industrial designers.'" He said if the major automakers had a product people actually wanted to buy, legacy costs would still be a factor, but companies like GM wouldn't be talked about as potential bankruptcy candidates.

In the energy patch, Chesapeake Energy ( CHK) and StatoilHydro ( STO) announced a joint venture to seek additional natural gas resources.

As for earnings, following Monday's close, coffee purveyor Starbucks ( SBUX) reported a decline in profit and fell short of analysts' estimates. The company also said it would not provide earnings guidance for the upcoming year.

Homebuilder Toll Brothers ( TOL) announced that its building revenue suffered a 41% decline for the latest quarter.

Telecom firm Vodafone ( VOD), meanwhile, announced falling profit for the first half of its fiscal year and reduced revenue guidance.

Analyst actions were setting a few names in motion. Credit Suisse cut its price target on American International Group ( AIG) to $1.50 from $3. Goldman cut its price target for Google ( GOOG) to $475 from $520.

Shifting to commodities, crude oil was losing $3.45 to $58.96 a barrel. Gold was dropping $14.20 to $732.30 an ounce.

The U.S. bond market is closed Tuesday for Veterans Day. The dollar was rising vs. the euro and pound but softening against the yen.

Credit markets were continuing to thaw. Three-month dollar Libor, a measure of the rate banks charge one another for large loans, was down 6 basis points at 2.18%. Overnight Libor was set at 0.35%.

Abroad, European exchanges, including the FTSE in London and the DAX in Frankfurt, were mostly edging downward. In Asia, Japan's Nikkei and Hong Kong's Hang Seng both closed with losses.