US STOCKS-Wall St falls on Countrywide worry, oil

By Jennifer Coogan

NEW YORK (Reuters) - U.S. stocks fell on Monday after crude oil set another record high and concern grew that Bank of America (BAC.N: Quote, Profile, Research) may not complete a proposed buyout of ailing lender Countrywide Financial Corp CFC.N.

The market began lower with news over the weekend that Microsoft Corp (MSFT.O: Quote, Profile, Research) had abandoned its offer to buy Yahoo Inc (YHOO.O: Quote, Profile, Research) for nearly $50 billion.

Banking stocks dragged on the market after a brokerage said Bank of America was likely to renegotiate its deal with mortgage company Countrywide or might even walk away from it. For details, see [nBNG173851].

A collapse of the Countrywide deal "would ignite fresh fears that the credit crisis continues to deepen. A lot of people are saying we're in the end, but that's coming from people who would benefit the most from it," said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland. "The stock market is going to sell first and ask questions later."

The Dow Jones industrial average .DJI was down 80.36 points, or 0.62 percent, at 12,977.84. The Standard & Poor's 500 Index .SPX was down 5.31 points, or 0.38 percent, at 1,408.59. The Nasdaq Composite Index .IXIC was down 6.69 points, or 0.27 percent, at 2,470.30.

Countrywide shares dropped 12.9 percent to $5.20 on the NYSE. Bank of America stock fell 1.3 percent to $39.63. Rival Citigroup Inc (C.N: Quote, Profile, Research) was down 1.9 percent to $38.85.

Microsoft initially offered $31 per share for Yahoo, then $33, but Microsoft withdrew from the talks when Yahoo Chief Executive Jerry Yang dug in for a price of $37 a share.

Yahoo shares sank 14.2 percent to $24.59. Microsoft shares rose 1.6 percent to $29.70 on Monday.