Stocks sank Thursday, ending the fastest rally in the S&P 500 since March 2009.
Bank stocks dragged the market lower after JPMorgan Chase & Co. reported that a slowdown in investment banking hurt its results in the third quarter. An afternoon surge in technology stocks limited some of the losses.
The Dow Jones industrial average fell 40.72 points, or 0.4 percent, to close at 11,478.13. JPMorgan fell 4.8 percent. Other banks also fell. Citigroup Inc. dropped 5.3 percent, Morgan Stanley 4.4 percent and Bank of America Corp. 5.5 percent.
JPMorgan is the first big U.S. bank to report earnings. Next week Wells Fargo & Co., Citigroup Inc. and Morgan Stanley will report. JPMorgan is widely considered the strongest U.S. bank, so the results don't bode well for other financial companies, said Jason Lilly, a portfolio manager at Rockland Trust Investment Management Group. JPMorgan's income fell 4 percent, hurt by a 31 percent plunge in investment banking fees.
An afternoon rally in technology stocks trimmed some of the market's losses. Yahoo Inc. rose 1 percent as investors speculated the company might be bought. Technology stocks in the Standard & Poor's 500 index rose 1 percent, the most of any industry group in the index. The technology-focused Nasdaq composite rose 15.51, or 0.6 percent, to 2,620.24.
There was other encouraging news from the technology industry. Apple Inc. rose 1.6 percent a day ahead of the release of its latest iPhone. Google's third-quarter earnings, released after the close of trading, soared past analyst expectations. The stock jumped 5.4 percent in after-hours trading.
The Standard & Poor's 500 index fell 3.59, or 0.3 percent, to 1,203.66. Financial stocks fell 2.4 percent, the most of the 10 company groups that make up the index.
Investors were also disappointed by a report that China's trade surplus narrowed for a second straight month in September. That suggests the Chinese economy is slowing more than previously thought, which could hurt demand for exports from the U.S.
Stocks soared over the past week on signs that Europe was starting to get a handle on its financial crisis. The Standard & Poor's 500 index soared 9.8 from Oct. 3, when it closed at its lowest level of the year, through Wednesday. That was the biggest 7-day jump in the S&P 500 since March 2009.
The sharp highs and lows are typical of the volatility that has plagued markets since August, when investors began reacting to fears that indebted economies in Europe would collapse and the U.S. would slide back into recession. Most analysts think that the market is in for more swings until a resolution to Europe's debt is reached.
"Europe will definitely contribute to more volatility. That story isn't done." said Lilly.
In Europe, there was more progress toward strengthening a financial rescue fund aimed at shoring up the region's banks. Slovakia's parliament approved a measure that would release large amounts of money to European banks and governments before a full-blown crisis sets in. Slovakia had blocked the bill Tuesday, becoming the only one of the 17 countries that use the euro to do so.
Wall Street has been fearful for months that one of Europe's shakier economies could collapse. If countries like Greece, Spain and Italy can't repay their debts, global banks that own those countries' debt would be at risk. That could make banks even more leery of lending to each other and to businesses. If that escalates enough, it could cause another international financial crisis similar to what happened in late 2008.
Officials in Europe seemed like they were making progress toward shoring up European banks. In addition to the stronger bailout package, European Commission leaders had said they would require banks to hold more capital to protect them against losses. But without specifics on how those reforms will be accomplished, traders are getting concerned that the plans will deteriorate.
In corporate news, BlackBerry-maker Research in Motion Ltd. Fell 1.7 percent after a three-day outage that cut off service to users across the world. The company said it had fixed the problem, which resulted from a breakdown in its European infrastructure.
The Blackstone Group LP lost 5.4 percent after a Citi Investment Research analyst dropped the private-equity firm from a list of favorite stocks, saying the firm won't be able to make strong real estate investments for some time because of the weak economy.
Chip-maker Broadcom Corp. rose 2.3 percent after an analyst upgraded the company, saying it was selling more chips for smartphones.