Aug. 20 (Bloomberg) -- U.S. stocks dropped for a third day as speculation grew that government will take over Fannie Mae and Freddie Mac, and oil's climb to a two-week high sent airlines and consumer shares falling.

Fannie Mae and Freddie Mac, the biggest U.S. mortgage financiers, tumbled more than 17 percent on concern rising debt costs will force the Treasury to bail them out. UAL Corp., the parent of United Airlines, and US Airways Group Inc. declined more than 12 percent. Macy's Inc. and Kohl's Corp. retreated, leading retailers lower, after Goldman Sachs Group Inc. said the rally in department stores will end.

The Standard & Poor's 500 Index slumped 3.84 points, or 0.3 percent, to 1,262.85 at 10:04 a.m. in New York. The Dow Jones Industrial Average lost 41.53, or 0.4 percent, to 11,307.02, and the Nasdaq Composite Index fell 4.08, or 0.2 percent, to 2,380.28. Two stocks retreated for each that rose on the New York Stock Exchange.

The S&P 500 is down 19 percent from an October record after the biggest U.S. housing slump since the Great Depression slowed consumer spending and spurred more than $500 billion of credit market losses for banks globally.

Fannie Mae slumped $1.08 to $4.93, and Freddie Mac decreased 85 cents to $3.32.

$223 Billion of Bonds

The companies have to repay $223 billion of bonds due by the end of the quarter, according to figures provided by the government-chartered companies and data compiled by Bloomberg. Rising borrowing costs and evidence that demand for their debt was waning last month led Treasury Secretary Henry Paulson to seek the authority to pump unlimited amounts of capital in Fannie and Freddie in an emergency.

UAL lost $1.73 to $11.84. US Airways slipped 92 cents to $6.72. Crude oil rose 1.2 percent to $115.91 a barrel before a weekly U.S. government report on stockpiles that may show gasoline supplies shrank for a fourth week in the world's largest energy user.

Macy's declined 57 cents to $19.75. Kohl's retreated 50 cents to $48.32. A slowdown in consumer spending will hurt sales at department stores, Goldman Sachs said. The brokerage downgraded Macy's and Kohl's to ``neutral'' from ``buy.''

The S&P 500 Financials Index lost 1 percent, slipped to the lowest since July 16.

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

Last Updated: August 20, 2008 10:06 EDT