Sept. 22 (Bloomberg) -- Insurers such as American International Group Inc. led benchmark U.S. stock indexes lower as Hurricane Rita threatened energy infrastructure and communities along the Texas coastline.

``All eyes are on the hurricane,'' said James Monaghan, a trader for AIG SunAmerica Asset Management in Jersey City, New Jersey. ``It's keeping oil high and pressuring the market.''

The Standard & Poor's 500 Index fell 4.75, or 0.4 percent, to 1205.45 as of 12:22 p.m. in New York. The Dow Jones Industrial Average lost 25.40, or 0.2 percent, to 10,352.63. The Nasdaq Composite Index declined 13.18, or 0.6 percent, to 2093.46.

The S&P 500 tumbled 2.2 percent in the previous three days, the biggest such loss in five months. Rita, with maximum sustained winds of 170 mph (274 kph), is ``potentially catastrophic,'' the National Hurricane Center said.

Rita was raised to the maximum Category 5 storm after U.S. trading ended yesterday. The storm may make landfall tomorrow and is more powerful than Hurricane Katrina, which slammed into the Gulf Coast last month and left more than 1,000 dead. Katrina caused insured losses that may reach $60 billion, making it the costliest U.S. disaster, storm modeler Risk Management Solutions Inc. has said.

Insurance Companies

An index of insurance companies lost 1.2 percent for the biggest drop among two-dozen S&P 500 industry groups.

AIG, the world's biggest insurer, fell 55 cents to $58.85. The company said this week that Katrina and other catastrophes may cost it about $1.1 billion in the third quarter.

Allstate Corp. the No. 2 U.S. home and auto insurer, declined to $50.33. U.S. shares of Axa SA, Europe's second- largest insurer, slid 57 cents to $26.04. IPC Holdings Ltd., a provider of property-catastrophe reinsurance, slumped $1.80 to $32.06.

A government report on jobless claims gave investors insight into the impact Katrina may have on the economy. Claims rose to 432,000 in the week ended Sept. 17, the highest in more than two years, as more applications arrived from people dislocated by Katrina, the Labor Department said. Economists expected 450,000 claims, according to a Bloomberg News survey.

Economy Softening

A private report suggested the U.S. economy was softening in August even before Katrina. The index of leading indicators slid 0.2 percent after a revised 0.1 percent decline in July, the first back-to-back drops since 2001, the New York-based Conference Board said.

Eight stocks were down for every three that rose on the New York Stock Exchange. Some 851 million shares changed hands on the Big Board, 18 percent more than the same time a week ago.

``It's amazing to me the headline news we've had this year in a negative way and the market has been able to maintain at least an even keel,'' said Eric Thorne, who helps oversee $2 billion at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania. ``That speaks to the real strength of our economy and the real strength of corporate earnings growth.''

Gross domestic product slowed to a 3.3 percent annual rate in the second quarter, the Commerce Department said last month, down from 3.8 percent in the first three months of the year. Earnings at S&P 500 companies are expected to expand 16 percent this quarter and 14 percent in the fourth quarter, based on Bloomberg analysis of Thomson Financial data.

Exceeding Forecasts

General Mills Inc., the No. 2 U.S. cereal maker, and KB Home, the fifth-largest U.S. homebuilder by stock market value, climbed after both reported quarterly earnings that exceeded analysts's estimates and KB Home boosted its 2005 forecast.

General Mills advanced 93 cents to $45.61. The company said fiscal first-quarter earnings increased to 64 cents a share. Analysts expected 56 cents, based on a survey by Thomson.

KB Home gained $1.41 to $72.13. The company had a profit of $2.55 a share in the third quarter ended Aug. 31, beating the $2.39 expected by analysts in a Thomson survey, and said it will earn $9.30 a share for the year, up from a previous forecast of $9.

Retailers advanced after Bed Bath & Beyond Inc. reported a better-than-expected second-quarter profit. The No. 1 U.S. home furnishings retailer had earnings 47 cents a share in the period ended Aug. 27, 1 cent more than the analyst forecast in a Thomson survey. The shares rose 53 cents to $37.95.

A gauge of retailers added 0.3 percent for the second-best performance among 24 groups in the S&P 500. Office Depot Inc., the world's largest office supplies retailer, added 52 cents to $28.85.

Sprint Rises

Sprint Nextel Corp., the No. 3 U.S. wireless carrier, added 81 cents to $24.36. The company raised the value of expected benefits from its merger by 20 percent to $14.5 billion and said it will use the savings to invest in its mobile-phone network.

Sony Corp., world's second-largest consumer electronics maker declined after forecasting its first loss in more than a decade. The company said it expects a net loss of 10 billion yen ($90 million) this fiscal year as competition increases and will cut 10,000 jobs. Sony's U.S. shares dropped $1.90 to $34.07.

To contact the reporter on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net.

Last Updated: September 22, 2005 12:34 EDT