July 20 (Bloomberg) -- U.S. stocks erased a week of record highs after earnings at Google Inc. and Caterpillar Inc. missed analysts' estimates and banks predicted greater losses from bad loans.

Google plunged the most since February 2006 after saying higher costs reduced profit. Caterpillar Inc. led the Dow Jones Industrial Average lower after earnings dropped on falling demand for truck engines. Citigroup Inc. pushed financial shares to the steepest retreat in the Standard & Poor's 500 Index after increasing its reserves for loan losses.

The Dow average fell as much as 202 points a day after it closed above 14,000 for the first time, driven by a record pace of takeovers and 19 straight quarters of profit growth above 10 percent. Concern defaults by borrowers with limited or poor credit histories will reduce banks' earnings sent 88 of 92 financial companies in the S&P 500 lower.

``You had a tired and nervous market, and you're looking at a couple of these high-profile earnings reports as an excuse to trim back,'' said Dean Gulis, who helps manage $2.8 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. ``People are concerned about what financial institutions own, whether they could be impacted to some degree by the subprime mortgage market and a possible general deterioration in credit quality.''

The S&P 500 lost 14.09, or 0.9 percent, to 1538.99 as of 3:21 p.m. in New York. The Dow average decreased 116, or 0.8 percent, to 13,884.41. The Nasdaq Composite Index slid 28.44, or 1.1 percent, to 2691.6.

Weekly Loss

For the week, the S&P 500 has fallen 0.8 percent, the Dow average has slipped 0.2 percent and the Nasdaq is down 0.4 percent.

The Chicago Board Options Exchange Volatility Index surged 9.5 percent to 16.67. Higher readings in the so-called VIX, derived from the prices paid for options on the S&P 500, indicate traders expect bigger stock-market swings in the next 30 days.

Google plummeted $26.23, or 4.8 percent, to $522.36 after earnings missed analysts' estimates due to higher costs. The company hired more employees than expected, boosting its workforce by 13 percent. Research costs soared 88 percent, outpacing sales growth. Google said it may bid at least $4.6 billion to buy wireless airwaves in a government auction, heightening concern that the company is spending too much.

Google's Rise

Google shares have surged 514 percent since the company's initial public offering in August 2004. That compares with a 41 percent gain in the S&P 500 during the same period.

``It's probably not a good time to be in the higher priced tech companies,'' said Eric Teal, who oversees about $7 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. ``You see companies like Google struggling given the priced-to-perfection scenario.''

Microsoft Corp. declined 38 cents to $31.13. Fourth-quarter earnings rose 7.3 percent, held back by more than $1 billion in costs to fix faulty Xbox consoles. The repair expenses eroded gains from new Windows and Office programs. Xbox unit sales fell short of Microsoft's original forecasts for the year and the business has lost more than $5 billion in five years.

A measure of computer-related shares in the S&P 500 has surged 40 percent in the past year and trades for 28 times historical earnings, making it the most expensive among 10 industry groups. The gauge declined 0.7 percent today.

Caterpillar, Banks

Caterpillar tumbled $5.50, or 6.3 percent, to $81.48. Profit missed analysts' estimates on increased production and materials costs and falling demand for truck motors and construction equipment. North American engine sales dropped 7.5 percent after companies bought models in 2006 ahead of stricter U.S. emissions standards.

Citigroup, the largest U.S. bank, lost 33 cents to $50.80. Profit from consumer banking fell 15 percent to $2.7 billion, as credit costs increased by $934 million. ``Credit will continue to deteriorate,'' Chief Financial Officer Gary Crittenden said. ``We will likely continue to take reserves in that area.''

The perceived risk of owning bank loans, corporate debt and securities based on the riskiest home mortgages surged today as worries about accelerating subprime losses curbed credit investors' appetites.

Waning investor demand for debt may increase companies' borrowing costs and make leveraged buyouts more expensive. Private-equity firms need to borrow $300 billion to finance acquisitions they have committed to worldwide, according to Bear Stearns Cos.

Announced U.S. mergers and acquisitions total $1.47 trillion this year, according to Bloomberg data.

Wachovia

Wachovia Corp. lost $1.35 to $50.26 after the fourth-biggest U.S. bank said total provision for credit losses rose to $179 million from $59 million a year earlier. Loans it couldn't collect almost tripled to $150 million from a year earlier.

Financial shares in the S&P 500 dropped 1.2 percent as a group and contributed the most to the broader index's decline.

Treasuries rose, pushing the 10-year note's yield down 8 basis points, or 0.08 percentage point, to 4.95 percent. That's the lowest in six weeks.

Xilinx Inc. declined $1.51 to $27.19. The world's largest maker of programmable semiconductors said sales fell 7.4 percent to $445.9 million, trailing the $453.4 million average analyst estimate in a Bloomberg survey. Earnings per share missed estimates by 1 cent.

Boston Scientific, Pall

Boston Scientific Corp. slipped 28 cents to $14.89. Profit at the world's second-largest maker of heart devices missed analysts' estimates as sales of its top-selling drug-coated stents plummeted 32 percent. Demand for the stents diminished after researchers linked them to life-threatening blood clots.

Pall Corp. plunged $8.28, or 17 percent, to $40.50 for the steepest drop in the S&P 500. The maker of filters and purification equipment for industrial uses began an internal inquiry to determine if it understated U.S. income tax payments starting in 1999. The company said it may be in default of certain lending agreements, and may require waivers.

Autodesk Inc. lost $3.10 to $44.80. Citi Investment Research downgraded the software maker to ``hold'' from ``buy'' and said there were few catalysts to drive the price higher.

Apple Inc. rose $4.06 to $144.06 after Piper Jaffray & Co. raised its price estimate for shares of the maker of the iPhone and the iPod music player 28 percent to $205.

``A tidal wave is coming in 2009,'' Minneapolis-based analysts Gene Munster and Michael Olson wrote in a report published today. ``One thing we learned with the iPod is that when a device is game-changing, the demand will come.''

Schlumberger Ltd. advanced $3.99 to $97.44. The world's largest oilfield-services provider earned $1.02 a share, beating the 96-cent mean estimate in a survey of analysts.

SanDisk Corp., the biggest of flash memory cards, gained $2.19 to $58.15 after reporting its first quarterly profit in six months, as demand increased in Europe and other markets outside the U.S. Both revenue and profit beat analysts' estimates.

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

Last Updated: July 20, 2007 15:22 EDT