March 13 (Bloomberg) -- U.S. stocks plunged, wiping out three days of gains, after growing mortgage delinquencies and slower retail sales heightened concern the home-loan crisis is spreading across the economy.

Bear Stearns Cos. fell the most since September 2001 and led declines among all 88 financial stocks in the Standard & Poor's 500 Index. KB Home and D.R. Horton Inc. pushed homebuilders to their biggest slump since November 2005.

The Mortgage Bankers Association said foreclosures are climbing on loans to borrowers with the best credit ratings, a sign of broader trouble in the housing market. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index all had their steepest retreats since a global rout two weeks ago.

``If this really does turn into a nasty downturn in housing, no one really knows what the implications for the economy will be,'' said Kevin Bannon, who oversees $120 billion as chief investment officer at Bank of New York Co. ``These things basically raise concern about whether we're slipping into a recession.''

The S&P 500 slid 28.65, or 2 percent, to 1377.95. All 10 of its industry groups declined.

The Dow average sank 242.66, or 2 percent, to 12,075.96 for only its second drop of more than 200 points since May. The Nasdaq decreased 51.72, or 2.2 percent, to 2350.57.

Goldman Sachs Group Inc., the world's largest securities firm by market value, fell even after it reported about 34 percent more profit than analysts expected.

Prime, Subprime

A report by the Mortgage Bankers Association showed that in the fourth quarter about 2.57 percent of so-called prime borrowers were at least 30 days late in their mortgage payments, the highest level in almost four years.

Delinquencies for subprime borrowers reached 13.33 percent, also the highest since 2003's second quarter.

A gauge of S&P 500 financial shares decreased 3.2 percent, the most among 10 industry groups. Bear Stearns slipped $10.18, or 6.7 percent, to $142.97. Lehman Brothers Holdings Inc. slid $4.55, or 5.9 percent, to $72 for its worst decline since October 2002.

Homebuilders in S&P indexes lost 4.6 percent. KB Home dropped $2.50, or 5.4 percent, to $43.86. D.R. Horton, the largest U.S. builder by market value, retreated 86 cents to $22.31.

``Mortgage defaults have been weighing on stocks,'' said Jason Graybill, who helps manage $750 million at Abner Herrman & Brock Inc. in Jersey City, New Jersey. ``It's certainly a negative. Things are going to get worse before they get better.''

Countrywide

Countrywide Financial Corp. lost $1.65 to $33.49. Banc of America's Robert Lacoursiere reduced his share-price estimate for the largest U.S. mortgage lender to $31 from $35, citing ``deteriorating industry fundamentals.'' The analyst has a ``sell'' rating on the stock.

Washington Mutual Inc. fell $2.11 to $39.79. The largest U.S. thrift's subprime mortgage business will be a ``meaningful drag'' on earnings for the next two or three quarters, Keefe Bruyette & Woods Inc. analysts Frederick Cannon and Robert Bohlen wrote in a note to investors.

Moody's Corp. dropped $4.01, or 6.3 percent, to $59.56 for the S&P 500's No. 3 retreat. The company, whose founder created credit ratings, fell on concern rising subprime mortgage defaults will slow demand for ratings of securities backed by home loans.

Accredited Home Lenders Holding Co., a mortgage company for people with bad credit, tumbled $7.43, or 65 percent, to $3.97. The company said it must raise cash after paying more than $190 million demanded by backers this year. The shares have lost 85 percent in 2007.

Bankruptcy Risk

Similar demands by lenders earlier this month prompted analysts to predict New Century Financial Corp., the second- largest mortgage lender to risky borrowers, will go bankrupt. New Century dropped 82 cents, or 49 percent, to 85 cents, bringing its loss for the year to 97 percent.

Government data showing retail sales rose last month less than economists forecast heightened concern that a crisis in mortgage lending may spill over from financial companies to department stores and discount retailers.

Retail sales in the U.S. rose 0.1 percent in February after being unchanged in January. Economists in a Bloomberg News survey predicted they would increase 0.3 percent last month.

That sent 28 of 29 retailers in the S&P 500 lower. Big Lots Inc. dropped $1.52 to $28.29. Wal-Mart Stores Inc., the world's largest retailer, fell $1.08 to $46.18.

`Not Confident'

``People are not confident that the American consumer is going to maintain their spending habits,'' said Charles Stamey, who helps manage $14 billion at Manning & Napier Advisors Inc. in Columbus, Ohio. ``If people start to see a slowdown there, that has major implications across the equity markets.''

Texas Instruments Inc., the world's biggest maker of chips for mobile phones, fell 85 cents to $31.74. First-quarter sales will be $3.07 billion to $3.22 billion, the company said. That compares with an estimate of $3.01 billion to $3.28 billion two months earlier.

The midpoint of Texas Instruments' new sales forecast is $3.15 billion, trailing the average estimate of $3.2 billion in a survey of analysts by Bloomberg. An inventory glut is still ``winding down,'' Ron Slaymaker, Texas Instruments' vice president for investor relations, said during a conference call.

GM Drops

General Motors Corp. dropped 81 cents to $30.51. GMAC LLC said it expects to get about $1 billion in cash this quarter from GM, its former parent, to maintain the finance company's value. GM, the world's largest automaker, sold a majority stake in GMAC in a transaction completed on Nov. 30.

GMAC also reported a fourth-quarter loss at its mortgage unit, ResCap, after setting aside more money to cover losses on subprime loans.

More than 20 stocks fell for every one that rose on the New York Stock Exchange. Some 1.96 billion shares changed hands on the Big Board, 25 percent more than the three-month average.

Goldman decreased $3.57 to $199.03. First-quarter profit rose 29 percent to a record $3.2 billion on trading gains and investment-banking fees. Per-share earnings were $6.67, beating the $4.99 average analyst estimate in a Bloomberg survey.

Qualcomm Inc. climbed $1.71, or 4.3 percent, to $41.83 for the biggest gain in the S&P 500. The world's second-biggest maker of chips for mobile phones raised its sales and profit forecast and increased its dividend, signs the company may be wresting orders away from rivals.

S&P 500 shares, called Spiders, slipped $2.74 to $138.25. Nasdaq-100 Index tracking shares, known by their QQQQ symbol, fell 84 cents to $42.37.

S&P 500 futures expiring in June retreated 27.60 to 1391.90 on the Chicago Mercantile Exchange. Nasdaq-100 futures declined 34 to 1744.25.

The Russell 2000 Index, a benchmark for companies with a median market value of $660 million, dropped 2.5 percent to 769.12. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 2 percent to 13,966.01. Based on its decline, the value of stocks decreased $363.9 billion.

Accredited Home Lenders Holding Co. (LEND US)
Bear Stearns Cos. (BSC US)
Big Lots Inc. (BIG US)
Countrywide Financial Corp. (CFC US)
D.R. Horton Inc. (DRI US)
General Motors Corp. (GM US)
Goldman Sachs Group Inc. (GS US)
KB Home (KBH US)
Lehman Brothers Holdings Inc. (LEH US)
Moody's Corp. (MCO US)
New Century Financial Corp. (NEWC US)
Qualcomm Inc. (QCOM US)
Texas Instruments Inc. (TXN US)
Wal-Mart Stores Inc. (WMT US)
Washington Mutual Inc. (WM US)

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.

Last Updated: March 13, 2007 17:26 EDT