June 27 (Bloomberg) -- U.S. stocks fell, pushing the Dow Jones Industrial Average to the brink of a bear market, on concern subprime-related writedowns at banks will worsen and record oil and a slowing economy will prolong the worst profit decline since 2002.

The Dow extended its retreat from an all-time high in October to almost 20 percent, the threshold for a so-called bear market. American International Group Inc. and Merrill Lynch & Co. helped send the Standard & Poor's 500 Financials Index to the lowest level since March 2003 on speculation of mounting losses. Consumer stocks in the S&P 500 slipped to a five-year low as oil topped $142 a barrel.

The Dow lost 115.29 points, or 1 percent, to 11,338.13 at 3:31 p.m. in New York, leaving it 6.51 points away from a bear market. The 30-stock measure fell 10 percent this month for the worst June since 1930. The S&P 500 slid 6.50, or 0.5 percent, to 1,276.65. The Nasdaq Composite Index slipped 11.80, or 0.5 percent, to 2,309.57. Seven stocks declined for every four that rose on the New York Stock Exchange.

``This week the news on earnings is that the second quarter is probably going to be worse than we thought,'' said Ron Sweet, vice president of equity investments at USAA Investment Management Co., which oversees $100 billion in San Antonio. ``The old news keeps sticking around: it's energy prices, it's writeoffs at banks, it's the slow economy.''

The S&P 500 slumped 3.1 percent this week, while the Dow slid 4.3 percent and the Nasdaq tumbled 4 percent. The four consecutive weeks of declines for the S&P 500 is the index's longest losing streak since January. The S&P 500's 8.8 percent decline in June is the worst monthly performance since the 11 percent plunge in September 2002.

Earnings Slump

Analysts forecast earnings for companies in the S&P 500 will slump 11 percent on average, according to a Bloomberg survey today, compared with a projected decline of 8.9 percent a week ago. Goldman Sachs Group Inc. strategist David Kostin said in a report today that expectations for 2008 and 2009 profits are ``too optimistic'' and are likely to be reduced.

AIG decreased 35 cents to an 11-year low of $27.74. The world's biggest insurer plans to absorb losses for a dozen insurance units after their securities-lending accounts suffered $13 billion of writedowns tied to the subprime-mortgage collapse during the past year.

Merrill fell 47 cents to $32.58, the lowest price since March 2003. Lehman Brothers Holdings Inc. analyst Roger Freeman increased his second-quarter loss estimate on expectations subprime-related writedowns will be more than twice as big as previously thought.

`Inconsistent' Performance

Morgan Stanley retreated 10 cents to $36.73. The second- biggest U.S. securities firm may have its Aa3 long-term credit rating lowered by Moody's Investors Service, which cited declining earnings and risk-management lapses.

``Since the onset of the credit crisis one year ago, Morgan Stanley's financial performance and risk management has been inconsistent, and below the levels expected of a Aa3-rated financial institution,'' New York-based Moody's said today in a statement.

MBIA Inc. lost 12 cents to a 20-year low of $4.27. The world's largest bond insurer faces a ``tenuous situation'' as it seeks to cover payments and collateral calls on $7.4 billion of securities triggered by a credit-rating downgrade, Fitch Ratings analyst Thomas Abruzzo said.

MBIA may need to tap assets pledged to back other commitments as it comes up with the money, potentially opening the company up for further downgrades, said Abruzzo, who yesterday withdrew his rating on MBIA and Ambac Financial Group Inc. after the companies refused to give him information.

Ambac, Hasbro Fall

Ambac slid 13 cents to $1.67, a record low.

The S&P 500 Consumer Discretionary Index lost 0.6 percent, falling to the lowest since October 2003, after crude oil gained as much as 2.4 percent to $142.99 a barrel. Hasbro Inc., the world's second-largest toymaker, lost $1.41 to $35.33.

KB Home, the homebuilder founded by Eli Broad, slumped 52 cents to $17.61. The company reported its fifth straight quarterly loss as rising mortgage rates and falling prices reduced demand for homes.

Homebuilders in S&P indexes lost 0.8 percent as a group. Lennar Corp. fell 65 cents to $12.69. The second-largest builder said yesterday that the housing market has yet to see the worst of the slump.

Micron Technology Inc. slumped the most since October 2006, falling 87 cents, or 13 percent, to $6.12. The largest U.S. producer of memory chips reported a wider third-quarter loss on weaker pricing for semiconductors used to store pictures and music in portable devices.

`Difficult' Month

``The month of June has been difficult,'' Matthieu Bordeaux- Groult, who helps oversee about $6.2 billion as fund manager at Richelieu Finance in Paris, said in a Bloomberg Television interview. ``There are a lot of negative elements in the market such as high raw materials prices, but valuations are low and offer buying opportunities.''

The S&P 500 gained as much as 0.5 percent earlier after U.S. consumer spending rose 0.8 percent in May, exceeding forecasts. Tax rebates drove the biggest gain in incomes in almost three years, enabling households to at least temporarily overcome soaring fuel bills.

Bristol-Myers Squibb Co. climbed the most since May 1, rising 66 cents, or 3.4 percent, to $20.33. The drugmaker selling a unit for $4.1 billion to finance acquisitions may itself be a takeover target, Sanford C. Bernstein & Co. analyst Timothy Anderson said.

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.

Last Updated: June 27, 2008 15:33 EDT