Updated from 3:16 p.m. EDT

Financial stocks sank late Wednesday as the broader market weakened in the afternoon.

Morgan Stanley ( MS) dragged on bank stocks early when it aired its quarterly results, but the sector reversed course shortly after the open. Financials changed direction again, though, and the KBW Bank Index ultimately lost 4.9%.

Morgan Stanley shares fell 9% to $22.44 after it reported that it swung to a first-quarter loss on a rebound in its bond prices. The company also is cutting its quarterly dividend 81% to 5 cents a share.

Wells Fargo ( WFC) gave up 3.4% to $18.18 after being in positive territory for most of the day following its quarterly report. The bank posted a profit of $3.05 billion, in line with its prior forecast, as rising credit losses were offset by a surge in mortgage banking and benefits from the Wachovia acquisition. Revenue came in slightly higher than its forecast at $21.02 billion.

Bank of America ( BAC) and JP Morgan Chase ( C) lost 5.7% and 1.9%, respectively, while Citigroup ( C), Goldman Sachs ( GS), and Deutsche Bank ( DB) eked out gains.

Shares of Bank of New York Mellon ( BK), which earlier in the week slashed its dividend 63% in an effort to build capital, fell 6.2% to $26.25.

Investors are awaiting the results of the government's so-called stress tests on the health of the biggest 19 banks in the nation. The tests are meant to determine how the banks would fare during various economic scenarios and how much capital support they might need.

Regulators will begin briefing banks Friday about how they fared in the tests, and will afford lenders the opportunity to debate the findings before they're made public a week later, according to a Wall Street Journal report.

Some of the largest banks, unhappy with restrictions that came with government funds, want to quickly repay what they've already borrowed.

US Bancorp ( USB) CEO Richard Davis said earlier this week that he's prepared to quickly repay the $6.6 billion in bailout funds that the bank received last fall. It shares, which surged more than 20% on Tuesday, fell back 8.4% to $17.65.

Citi CEO Vikram Pandit said at the bank's annual meeting that it will repay "every dollar" it owes to the government. Roughly $45 billion of taxpayer-funded bailout money has been infused in the bank.

Goldman Sachs and JP Morgan Chase have been among the most aggressive in their bid to purge the government money.

But the government has said that repayments may be restricted. JPMorgan CEO Jamie Dimon said his bank is "waiting for guidance" from the U.S. government. Although resolute to return the money, Goldman has also indicated it will await the OK from regulators after its test is completed.

In his prepared remarks for a hearing on Tuesday, Treasury Secretary Tim Geithner said the "vast majority" of banks are adequately capitalized, fueling a rally in financials.