Dec. 11 (Bloomberg) -- U.S. stocks tumbled the most in a month as investors speculated the Federal Reserve's quarter-point interest-rate cut will fail to prevent a recession.

Bank of America Corp. and Citigroup Inc. led all 93 companies in the S&P 500 Financials Index lower, and homebuilder shares fell the most ever, after the Fed said the housing slump is getting worse. Washington Mutual Inc., the largest U.S. savings and loan, posted its steepest drop in a month on plans to write down the value of its home-lending unit. Freddie Mac, the second-biggest mortgage-finance company, slid for a third day after forecasting a wider loss than analysts estimated.

The S&P 500 lost 38.31, or 2.5 percent, to 1,477.65. The Dow Jones Industrial Average retreated 294.26, or 2.1 percent, to 13,432.77. The Nasdaq Composite Index decreased 66.6, or 2.5 percent, to 2,652.35. Almost 14 stocks declined for every one that rose on the New York Stock Exchange. Treasuries rallied the most in more than three years and the dollar weakened against the yen.

``It should have been more aggressive,'' said Quincy Krosby, who helps manage $330 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``The market's instinctive reaction is that it's too little too late and that the Fed is behind the curve.''

Rate Bets

Some investors had expected the Fed to do more to preserve the economy's six-year expansion. Before the central bank's announcement, futures trading showed 36 percent odds of a half- point reduction to 4 percent, up from 28 percent yesterday. The central bank also reduced the discount rate it charges banks for direct loans by a quarter percentage point to 4.75 percent.

The S&P 500's decline was the second-biggest retreat following a Fed meeting since 1990. The largest rout followed the Fed's meeting on Sept. 17, 2001, according to Bespoke Investment Group.

Wells Fargo & Co. Chairman Richard Kovacevich said in interview this morning he expected the Fed to cut its discount rate by as much as three-quarters of a point.

Bank of America fell $1.99 to $44.65. Citigroup tumbled $1.54 to $33.23. Wells Fargo lost $1.87 to $30.77. The S&P 500 Financials Index slumped 4.9 percent, the most since Nov. 7.

Citigroup named former Morgan Stanley President Vikram Pandit as chief executive officer before the Fed's decision was announced. Pandit, who takes over immediately, will try to help the largest U.S. bank recover from at least $9 billion of mortgage losses under predecessor Charles O. Prince.

Washington Mutual, Freddie Mac

Washington Mutual dropped $2.46 to $17.42. The company will slash its dividend by 73 percent, write down the value of its home-lending unit by $1.6 billion in the fourth quarter and cut about 6 percent of its workforce as mortgage-market losses increase.

Freddie Mac slid $3.73 to $31.31 after saying fourth-quarter results are not going to be better than a third-quarter loss of $2.02 billion, or $3.29 a share. Analysts in a Bloomberg survey had estimated a loss of about $1.27 a share, excluding some items. The company said it doesn't see a ``short-term quick fix'' to the housing market deterioration.

Financial companies have lost more than $70 billion this year after writing down the value of bonds tied to mortgages.

``The biggest surprise was the Fed didn't cut the discount rate more to ease the credit crunch,'' said Frederic Dickson, chief market strategist at D.A. Davidson & Co., which manages $23 billion in Lake Oswego, Oregon. ``The economy is going to muddle on slowly and the credit markets are being left out on their own without any help from the Fed.''

Genworth Financial Inc. dropped $2.06 to $26.13. The insurer divested by General Electric Co. said 2008 profit will be below analysts' expectations because of possible losses related to the U.S. housing slump. Genworth forecast operating earnings of $2.65 to $3.10 a share, compared with the average estimate of $3.28 by 17 analysts in a Bloomberg survey.

Economic Concern

Temple-Inland Inc., a maker of corrugated packaging, and Monsanto Co., the world's largest producer of seeds, led a gauge of raw-materials producers to the second-steepest decline among 10 industries in the S&P 500.

Temple-Inland lost $3.58 to $33.13. Monsanto declined $6.69 to $102.67.

The yield on two-year Treasury notes fell 24 basis points, or 0.24 percentage points, to 2.93 percent. The yield on benchmark 10-year notes decreased 18 basis points to 3.98 percent. The yen traded at 110.65 per dollar.

The housing slump, entering its third year, will cool consumer spending and slow U.S. economic growth to 1 percent in the fourth quarter, a survey showed. Economists cut their estimates for the expansion this quarter from November's 1.5 percent forecast, according to the median of 63 estimates in a Bloomberg News survey taken Dec. 3 to Dec. 10.

Homebuilders Tumble

A gauge of 15 homebuilders in S&P indexes fell the most ever, dropping 9.7 percent. The measure had climbed 32 percent from a five-year low on Nov. 27 through yesterday, partly on expectations that a plan by Treasury Secretary Henry Paulson to freeze subprime adjustable mortgage rates will help stem foreclosures and keep the supply of unsold houses from rising.

Lennar Corp., the biggest U.S. homebuilder, fell $2 to $17.02. Pulte Homes Inc., the second largest, dropped $1.48 to $10.73. Centex Corp., the third biggest, plunged 13 percent, the steepest drop in the S&P 500, to $22.98.

H&R Block Inc. dropped 65 cents to $19.30. The biggest U.S. tax preparer said its second-quarter loss more than tripled on writedowns tied to closing its money-losing mortgage business. The company's net loss from continuing operations was 42 cents a share, wider than the 36-cent average estimate of six analysts surveyed by Bloomberg.

GE, Starbucks

General Electric Co. lost 38 cents to $37.03. The world's third-biggest company by market value said it will earn at least $2.42 a share next year. The lowest analyst estimate is $2.44, according to a Bloomberg survey.

Wyndham Worldwide Corp. plunged $3.13, or 10 percent, to $27.46. The world's largest timeshare company forecast first- quarter profit that trailed analysts' estimates. Earnings per share in the quarter may be from 30 cents to 35 cents, the company said, less than the 50-cent average estimate of analysts surveyed by Bloomberg.

Starbucks Corp. retreated 83 cents to $21.89. Shares of the world's largest chain of coffee shops were downgraded to ``neutral'' from ``buy'' at Goldman Sachs Group Inc. on concern over U.S. competition and consumer demand. The brokerage also lowered its price estimate on the stock to $26 from $27.

Texas Instruments Inc. advanced 26 cents to $32.93. Fourth- quarter sales will increase to a range of $3.5 billion to $3.66 billion, compared with an October forecast of $3.4 billion to $3.68 billion, the Dallas-based company said yesterday. Texas Instruments also raised the low end of its profit forecast.

AT&T Inc., the nation's largest phone company, added $1.56, or 4.1 percent, to $39.46, its biggest rally since July 2006. The largest U.S. phone company announced a $15.2 billion stock buyback today and raised its dividend 13 percent.

The Russell 2000 Index, a benchmark for companies with a median market value of $597 million, dropped 3.2 percent to 766.27. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 2.5 percent to 14,923.55. Based on its decline, the value of stocks decreased by $485 billion.

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

Last Updated: December 11, 2007 17:51 EST