Stocks drop with banks; Cisco cushions Nasdaq

By Ellis Mnyandu

NEW YORK (Reuters) - The Dow and S&P 500 fell on Tuesday as bank stocks slid on a broker warning about more losses at Citigroup and the Federal Reserve chairman said mortgage delinquencies and foreclosures were likely to rise.

But the Nasdaq ended little changed after Cisco Systems Inc's (CSCO.O: Quote, Profile, Research) chief executive said he is more confident in the company's long-term growth, easing concerns about business spending.

The day got off to a rough start after Merrill Lynch & Co forecast a $15 billion loss at Citigroup Inc (C.N: Quote, Profile, Research), sparking a 4.3 percent slide in its shares and pushing the S&P financial index down to a fourth straight day of losses.

"There's just uneasiness with the financials and the potential for the continuation of the credit problems," said Stephen Carl, principal and head of U.S. equity trading at the Williams Capital Group in New York.

The Dow Jones industrial average .DJI fell 45.10 points, or 0.37 percent, to 12,213.80. The Standard & Poor's 500 Index .SPX dropped 4.59 points, or 0.34 percent, to 1,326.75. But the Nasdaq Composite Index .IXIC inched up 1.68 points, or 0.07 percent, to 2,260.28.

CNBC television reported that a deal to rescue ailing bond insurer Ambac Financial Group (ABK.N: Quote, Profile, Research) was near, pushing the company's shares up nearly 8 percent and helping the broader market cut losses during the session's last hour.

"The Ambac news started the recovery and Cisco comments pushed it further and then you got a bunch of short covering. You don't want to get caught short late in the day," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

At one time during the day, the S&P 500 index traded near its January 22 close of 1,310.