June 22 (Bloomberg) -- U.S. stocks plunged, capping the worst week for the Standard & Poor's 500 Index since early March, as concern intensified that banks will be saddled with losses on mortgage bonds.

Financial shares contributed 28 percent to the drop in the S&P 500, led by Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. Exxon Mobil Corp. led energy producers lower after the price of natural gas slid to a three-month low.

Speculation that institutional investors will have to write down the value of securities containing subprime mortgages spread as Bear Stearns Cos. fought to stop the collapse of a hedge fund that lost 20 percent this year. Bear's plan to assume $3.2 billion of loans to the fund fueled concern of widespread markdowns of similar investments held by banks, pension funds and other investors.

``The overarching issue here is that this was a market that wasn't pricing in risk correctly,'' said David Pearl, who helps manage $5.4 billion at Epoch Investment Partners in New York. ``This was a clear risk to the stock market in general and the financial market in terms of confidence in owning what you think you own.''

The S&P 500 Index lost 19.63, or 1.3 percent, to 1502.56. The Dow Jones Industrial Average fell 185.58, or 1.4 percent, to 13,360.26. The Nasdaq Composite Index slid 28, or 1.1 percent, to 2588.96.

For the week, the S&P 500 and Dow average lost about 2 percent, the steepest drop since the week ended March 2. The Nasdaq retreated 1.4 percent, while the S&P 500 Financials Index sank 2.9 percent in the week.

Bear Stearns

Citigroup, the world's biggest financial-services firm, lost $1.25 to $52.41. Bank of America, the second-largest U.S. bank, slipped 94 cents to $48.95. JPMorgan, the third-largest bank, retreated $1.12 to $48.72.

Moody's Corp., the inventor of credit ratings, dropped for a third day, falling 62 cents to $63.37.

Bear Stearns tumbled $2.06 to $143.75. The firm proposed to assume the loans to its hedge fund in order to stop creditors from seizing assets. The proposal came after Merrill Lynch & Co., JPMorgan and Lehman Brothers Holdings Inc. put some of their collateral up for sale to investors.

Bear Stearns spokesman Russell Sherman didn't immediately return calls seeking comment.

Investors and ratings companies are increasing scrutiny of securitizations linked to subprime loans amid a rise in delinquencies, defaults and foreclosures. Four collateralized debt obligations containing subprime mortgages from 2006 and valued at $3.1 billion may have their credit ratings cut by Fitch Ratings.

`Tipping Point'

``The demise of two Bear Stearns managed leveraged mortgage funds could be the tipping point of a broader fallout from subprime mortgage credit deterioration,'' New York-based analysts at Bank of America Corp. including Robert Lacoursiere wrote in a report published today. They added that the situation could lead to higher rates for new mortgage borrowers.

Exxon Mobil, the world's largest publicly traded energy company, slid $1.78 to $82.52. Natural gas in New York plunged to as low as $7.13 per million British thermal unit, the lowest since March 20, as adequate storage eased concern over potential supply shortfalls and analysts forecast lower prices.

The Dow average fell on a Friday for the first time in 14 weeks. Speculation companies would be swept up by takeovers over the weekend had helped stocks gain on the last day of the week in the previous 13 weeks.

Blackstone Surges

Blackstone Group LP surged $4.06, or 13 percent, to $35.06 in its debut on the New York Stock Exchange. Blackstone abandoned 22 years of private ownership, raising $4.13 billion yesterday by selling a 12.3 percent stake that values the buyout firm at $33.5 billion in the biggest U.S. initial public offering in five years.

It sold partnership units at $31 each, the top of the range used to market the securities. The New York-based firm will use the money to expand its buyout and asset-management units, and pay founders Stephen Schwarzman and Peter G. Peterson $2.33 billion.

Abercrombie & Fitch Co. fell $2.87 to $73.71. The casual clothing retailer for teens and college students was cut to ``equal weight'' from ``overweight'' at Lehman Brothers. The company's same-store sales could decline in the second and third quarters, and a later back-to-school period could result in a ``disappointing'' July, analysts wrote in a note.

PMC-Sierra, Sanmina

PMC-Sierra Inc., a maker of chips for telecommunications equipment, slid 4.8 percent to $7.75, the steepest decline in the S&P 500. Sanmina-SCI Corp., a manufacturer of electronics for other companies, dropped 2 cents to $3.39. Both companies will be removed from the S&P 500 Index after the close of trading on June 29, S&P said yesterday.

Sirius Satellite Radio Inc. added 17 cents, or 6 percent, to $3.01. The pay-radio company that proposed to buy larger rival XM Satellite Radio Holdings Inc. attracted 2 million new subscribers with Howard Stern, the controversial on-air host, after he left CBS Corp., a new study said. Stern could bring in as many as 600,000 more, according to the report by media researcher Bridge Ratings LLC.

Merrill Lynch analysts also said the company's shares are ``undervalued'' because Sirius is unlikely to succeed in combining with larger rival XM Satellite Radio Holdings Inc. and offers a better product.

Jabil Circuit Inc. surged $1.93, or 9.1 percent, to $23.13 for the best advance in the S&P 500. The maker of phones for Nokia Oyj and electronics for Hewlett-Packard Co. reported profit that topped analysts' estimates. The stock's recommendation was raised to ``outperform'' at RBC Capital Markets and Credit Suisse. Chief Executive Officer Timothy Main said the company will continue to make acquisitions and he is ``confident'' of its recovery.

EBay Gains

EBay Inc. jumped 63 cents to $31.76. Analysts at Sanford C. Bernstein & Co. rated the world's largest online auctioneer at ``outperform'' in new coverage on growth prospects for its PayPal online payment service.

The Chicago Board Options Exchange Volatility Index jumped 11 percent to 15.75. Higher readings in the so-called VIX, derived from the prices paid for options on the Standard & Poor's 500 Index, indicate traders expect larger stock-market swings in the next 30 days.

More than 10 stocks fell for every three that rose on the New York Stock Exchange. Volume was above average due to changes in Russell indexes. Some 2.6 billion shares changed hands, the most since July 2002 and 65 percent more than the three-month average.

Russell Rebalancing

Schlumberger Ltd., Tyco International Ltd. and Accenture Ltd. gained. The companies joined Russell Investment Group's U.S. stock indexes today after Russell stopped excluding firms incorporated outside the nation. Changes to the Russell 1000 Index and Russell 2000 Index follow an annual review and were announced June 11.

Joining the gauges may lift new members' shares because funds tracking the indexes need to own stock of their members. About $579 billion is invested in funds mimicking Russell's U.S. stock indexes, according to Citigroup Inc.'s Nicholas Gulden.

Russell added 277 companies to the indexes and deleted 174, according to spokesman Steve Claiborne.

The Russell 2000, a benchmark for companies with a median market value of $687 million, fell 0.6 percent to 834.75. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dove 1.1 percent to 15,203.32. Based on its retreat, the value of stocks decreased by $215.9 billion.

Abercrombie & Fitch Co. (ANF US)
Accenture Ltd. (ACN US)
Bank of America Corp. (BAC US)
Blackstone Group LP (BX US)
Citigroup Inc. (C US)
EBay Inc. (EBAY US)
Exxon Mobil Corp. (XOM US)
Jabil Circuit Inc. (JBL US)
JPMorgan Chase & Co. (JPM US)
Moody's Corp. (MCO US)
PMC-Sierra Inc. (PMCS US)
Schlumberger Ltd. (SLB US)
Sirius Satellite Radio Inc. (SIRI US)
Tyco International Ltd. (TYC US)

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net

Last Updated: June 22, 2007 18:06 EDT