Feb. 10 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index to its biggest drop since Barack Obama’s inauguration, while Treasuries rallied on skepticism that the government’s bank rescue will work. The dollar and gold rose.

Bank of America Corp. and Citigroup Inc. slipped more than 15 percent after Treasury Secretary Timothy Geithner said he’s still “exploring a range of different structures” to bail out lenders. Principal Financial Group Inc. plunged 30 percent on concern the life insurer needs more capital. Alcoa Inc. slumped 10 percent after S&P cut the aluminum producer’s credit rating to the lowest investment grade. Nine S&P 500 stocks rallied. All Dow Jones Industrial Average companies fell at least 2.8 percent.

The S&P 500 Index dropped 4.9 percent, the most since Jan. 20, to 827.16. The Dow average decreased 381.99 points, or 4.6 percent, to 7,888.88. Ten-year Treasury notes rose, driving their yield down by 0.16 percentage point to 2.82 percent. The dollar gained 0.8 percent against the euro, and gold rose 2.4 percent as investors sought havens.

“Everybody is disappointed in the lack of details,” said Diane Garnick, who helps oversee $354 billion as an investment strategist at Invesco Ltd. in New York. “They came out and said, ‘We want you to believe that we’re still working on this.’ Well, we knew that last night.”

Geithner pledged up to $2 trillion in government financing for programs aimed at spurring new lending and addressing banks’ toxic assets. The plan, which he said will “take time” to bear fruit, includes limits on bank dividends and acquisitions.

‘Lack of Clarity’

The S&P 500 Financials index lost 11 percent, the most among 10 industries. Bank of America fell 19 percent to $5.56, and Citigroup retreated 15 percent to $3.35, giving them the steepest drops in the Dow average.

“There’s still a lack of clarity,” Dan McMahon, director of equity trading at Raymond James Financial Inc. in St. Petersburg, Florida, said of Geithner’s proposal. “These are smart people and they’re supposed to have it figured out. We’ve been waiting all week and then he said nothing.”

Regional banks accounted for seven of the 10 biggest drops in the S&P 500 following Geithner’s comments. Regions Financial Corp., SunTrust Banks Inc., KeyCorp, Marshall & Ilsley Corp., Huntington Bancshares Inc., Fifth Third Bancorp and Zions Bancorporation lost more than 19 percent.

Principal Financial sank 30 percent to $11.99. The life insurer seeking U.S. aid said profit fell and declining values of corporate debt and mortgage-backed securities reduced capital.

‘No Panacea’

Lincoln National Corp. fell 19 percent to $14.42. The life insurer reported its first loss in six years. Moody’s Investors Service said it may downgrade the company’s credit ratings.

Stocks extended losses after Federal Reserve Chairman Ben S. Bernanke told Congress that increased liquidity from the central bank will be “no panacea” for lenders. Concerns about credit risk are still limiting willingness to offer loans, he said.

“No one has put anything on the table yet to stop the bleeding,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $3.5 billion in San Antonio. “This won’t stop until someone comes up with a viable plan and we can see light at the end of the tunnel.”

Energy companies in the S&P 500 slumped 4.7 percent as crude oil fell on speculation the bank rescue plan won’t boost the economy. Exxon Mobil Corp. was the biggest drag on the benchmark index for U.S. stocks, slipping 4.2 percent to $76.14. Crude for March delivery fell 4.8 percent to $37.66 a barrel in New York.

VIX Jumps

The benchmark index for U.S. stock options jumped to the highest since Jan. 23 as investors paid more to use options as insurance against stock-market declines. The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 6.9 percent to 46.77. The index averaged 32.65 last year.

Alcoa fell 10 percent to $7.65. The largest U.S. aluminum producer, which plunged 69 percent last year, had its long-term debt ratings cut two levels to BBB-.

Kroger Co. lost 6.4 percent to $21.44, and Safeway Inc. slumped 6.4 percent to $20.50. Citigroup Inc. said the biggest and third-largest U.S. grocers may engage in a price war.

Time Warner Inc. slipped 7.4 percent to $8.66. Sanford C. Bernstein & Co. said shares of the world’s largest media company are expensive compared with its peers. Time Warner was cut to “market perform” from “outperform.”

Qwest Communications International Inc. rose 2.4 percent to $3.45. The phone-service provider posted fourth-quarter profit that topped the average analyst estimate by 18 percent after trimming payrolls.

The S&P 500 has climbed 9.9 percent from an 11-year low on Nov. 20. The benchmark dropped 38 percent last year, its worst performance since the Great Depression. The S&P 500, Dow and MSCI World Index posted their steepest January declines as companies reported disappointing earnings and the U.S. economy shrank at the fastest pace in 26 years.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

Last Updated: February 10, 2009 16:19 EST