Stocks fall amid unease over bad debt

NEW YORK -- Stocks pulled back sharply Monday as news that major U.S. banks will set up a fund to help bail out the credit markets stirred concerns about bad debt and as oil prices surged to $86 per barrel for the first time. The Dow Jones industrial average lost more than 100 points.

The stock market's pullback comes not only amid concerns about debt and rising energy costs but as investors await third-quarter reports due this week from more than 80 components of the Standard & Poor's 500 index.

The Dow fell 108.28, or 0.8%, to 13,984.80.

Broader stock indicators also fell. The S&P 500 index fell 13.09, or 0.8%, to 1548.71, and the Nasdaq composite index fell 25.63, or 0.9%, to 2780.05.

The concerns about banking came after Citigroup, the biggest U.S. bank, reported that third-quarter results fell 57%. The company said it lost more than $3 billion in mortgage-backed security losses, leveraged debt write-downs and fixed-income trading losses.

The bank — along with JPMorgan Chase and Bank of America — announced the creation of a fund used to help revive the asset-backed commercial paper market. The fund will buy assets from structured investment vehicles, also known as SIVs, which buy corporate bonds and subprime mortgage debt. The bailout was orchestrated by the Treasury Department to avoid a fire sale in the market.

"It's a reminder that this problem never was entirely put to bed. There may be financial institutions out there than are in more trouble than we thought they were," said Aaron Gurwitz, co-head of portfolio strategy at Lehman Bros. Investment Management, referring to concerns about bad debt. He also noted that Monday's session wasn't unusual given the back-and-forth moves in the major indexes in recent sessions.

Bonds fell following a better-than-expected economic regional economic reading in New York. The yield on the benchmark 10-year Treasury note rose to 4.68% from 4.65% late Friday. The dollar was mixed against most other major currencies, while gold prices rose.