Dow Jones update

FINANCIAL shares led the US stock market sharply lower yesterday after federal regulators filed civil fraud charges against Goldman Sachs over its dealings in subprime mortgages.

The drop stalled the rally that put the Dow Jones industrial average over 11,000 earlier this week.

Analysts said the market was poised to fall after two months of steady gains, and the Goldman Sachs news gave investors a reason to take some profits.

The Dow Jones industrial average dropped 125.91 points, or 1.1 per cent, to 11,018.66. The Standard & Poor's 500 index lost 19.54 points, or 1.6 per cent, to 1,192.13. The Nasdaq Composite Index shed 34.43 points, or 1.4 per cent, to 2,481.26.

"Basically it's sell, and ask questions later," said Quincy Krosby, market strategist at Prudential Financial. "A market that wants to sell off will find an excuse."

Stocks were already lower before news of the Securities and Exchange Commission's charges against the leading investment bank. Investors were disappointed after Google reported earnings that didn't live up to forecasts.

General Electric and Bank of America reported profits that topped forecasts, but their stocks still fell. GE's revenue came up short of expectations, while Bank of America said loan losses remain high.

"It's all a knee-jerk reaction to Goldman," said Steven Goldman, chief market strategist at Weeden & Co, referring to the market's drop. He said the fundamentals of the market have not changed.

The charges come as the Obama administration seeks greater regulation of America's banks and their trading of exotic securities like those involved in the Goldman case. Analysts say other banks that traded such securities will be closely scrutinised.