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U.S. markets slide on banking fears

NEW YORK, July 15 (UPI) -- U.S. stock indexes slid Tuesday morning with a renewed focus on troubled banks.

The Federal Deposit Insurance Corp.'s seizure of California's IndyMac Bancorp Friday was a sign of trouble in the industry. National City shares have fallen 77 percent since the first of the year. On Tuesday, Wachovia shares fell nearly 12 percent, The Wall Street Journal reported.

In midmorning trading, the Dow Jones industrial average was down 140.20 points to 10,914.99, down 1.27 percent. The Standard & Poor's 500 index lost 17.11 points to 1,211.19, down 1.39 percent. The Nasdaq composite index fell 1.11 percent to 2,188.32, down 24.55 points.

The 10-year U.S. Treasury note gained 12/32 to yield 3.815 percent.

The dollar fell. The euro traded at $1.5967 from Monday's $1.5911, while the dollar traded at 104.72 yen from Monday's 106.11 yen.

In Tokyo, the Nikkei index lost 255.60 points to 12,754.56, off 1.96 percent.

Bernanke warns of slow economic recovery

WASHINGTON, July 15 (UPI) -- U.S. financial institutions remain stressed and the economy faces a slow recovery, Federal Reserve Bank Chairman Ben Bernanke said Tuesday.

Bernanke told members of the U.S. Senate Committee on Banking, Housing and Urban Affairs in Washington that lowering key interest rates and expanded lending in recent months "have had positive effects."

However, "declining house prices, a softening labor market and rising prices of oil, food and some other commodities" present the economy with "numerous difficulties," he said.

Tighter credit and inflation of gas and food prices have lead to "restrained" consumer spending, Bernanke said.

The Fed now expects economic growth "to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery," he said.

Bernanke also said "helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve," a possible indication that the Fed will hold down interest rates in the near term.

Treasury plan appears likely to pass

WASHINGTON, July 15 (UPI) -- Financial leaders in the U.S. Congress expect quick passage of a plan to extend federal credit for two mortgage lenders, sources said.

U.S. Senate Banking Committee Chairman Chris Dodd, D-Conn., said he would support a "one vote, one package" strategy by bundling the U.S. Treasury Department's plan to extend credit to troubled lenders Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association with the recently passed Senate housing bill, Politico, a Washington publication, reported Tuesday.

U.S. House of Representatives Financial Services Committee Chairman Barney Frank, D-Mass., said he expects the House to approve the bill as soon as Thursday, the report said.

But some Republicans are asking for more time to study the situation.

"Congress should not use this 'crisis' to rush the government into the mortgage business," said U.S. Sen. Jim DeMint, R-S.C.

U.S. Treasury Secretary Henry Paulson Jr. announced the plan Sunday. Freddie Mac and Fannie Mae, which hold trillions of dollars in debt, have seen share values tumble in the past week.

IndyMac customers line up on bad news

PASADENA, Calif., July 15 (UPI) -- Banks stocks fell sharply on U.S. markets on a day the industry's insurer tried to reassure the public a recent bank failure was no cause for alarm.

The Federal Deposit Insurance Corp. said Monday that seizing control of IndyMac Bank of Pasadena, Calif., was "largely a non-event."

Thousands of customers, however, lined up at IndyMac outlets Monday to withdraw funds, the Los Angeles Times reported.

The FDIC said personal accounts of up to $100,000 and retirement accounts of up to $250,000 were fully guaranteed. But, about 10,000 of the bank's customers owned accounts that exceeded those limits, the Times reported.

Charles Tengeri, 70, told the Times he was praying for return of the remainder of his savings.

Tengeri waited in line for five hours to withdraw his money, leaving the bank with a check for $171,000, well short of the full amount -- worth more than $200,000 -- he had in IndyMac accounts, the newspaper said.

On the stock market, banks endured a punishing day, with share values for the group falling further in one day than they had since 1989, the Times reported.

Washington Mutual Inc. shares fell 35 percent, while California bank Downey Financial Corp. saw its shares tumble 24 percent.