Trader John Bowers works on the floor of the New...

Trader John Bowers works on the floor of the New York Stock Exchange. (July 15, 2010) Credit: AP

Investors are finding disappointment everywhere and taking out frustrations on stocks.

Stocks slumped Friday after banks' second-quarter earnings fell short of expectations and a new survey stated consumers are becoming more pessimistic.

The Dow Jones industrial average lost 261 points, and all the major market indexes dropped more than 2.5 percent.

The market fell at the opening after Citigroup Inc. and Bank of America Corp. released earnings. The two banks, like JPMorgan Chase & Co. a day earlier, reported higher earnings as losses from failed loans fell. They are also seeing lower trading revenue because of the stock market's plunge this spring. The drop in revenue raised questions about how banks will make big profits if new federal regulations are approved.

Stocks fell further after a twice-monthly survey from the University of Michigan and Reuters found that consumers' gloom is increasing. The survey fell to 66.5 in early July from 76, a bigger drop than expected.

The unexpectedly low reading on consumer confidence "spooks people and reinforces fears that the economy is slowing too much too fast," said Scott Marcouiller of Wells Fargo Advisors. He noted that stocks had just enjoyed a seven-day winning streak, which makes them vulnerable to a big drop.

The Dow fell 261.41, or 2.5 percent, to 10,097.90. The Standard & Poor's 500 index fell 31.60, or 2.9 percent, to 1,064.88. The Nasdaq composite index fell 70.03, or 3.1 percent, to 2,179.05. - AP

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