NEW YORK - 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 chief executive said he expects the economy's problems to be short-lived, easing concerns about the impact of slower growth on business spending.

The day got off to a rough start after Merrill Lynch & Co forecast a US$15 billion (S$21 billion) loss at Citigroup Inc, sparking a 4.3 per cent slide in its shares and pushing the S&P financial index down to a fourth straight day of losses.

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

CNBC television reported that a deal to rescue ailing bond insurer Ambac Financial Group was near, pushing the company's shares up nearly 8 per cent 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 Mr 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 Jan 22 close of 1,310.

And after spending most of the day in the red following a reduced profit margin forecast from Intel Corp, the Nasdaq edged higher as reassuring comments from networking equipment maker Cisco eased worries about tech spending.

Even so, concerns about the financial sector's outlook dominated, causing shares of Citigroup, the largest US bank when ranked by assets, to finish down 4.3 per cent at US$22.10 on the New York Stock Exchange.

Shares of Bank of America Corp, the No. 2 US bank by assets, closed down 1 per cent at US$38.78, and shares of JPMorgan Chase & Co, the No. 3 US bank, declined 1.6 per cent to US$39.19.

Other financial companies, including insurer American International Group Inc, fell 1.8 per cent to US$45.83. The S&P financial index, down nearly 1 per cent, capped its longest string of losses since December.

But on the Nasdaq, shares of Apple Inc contributed the most to the index's slight uptick, finishing up 2.4 per cent at US$124.62. The company reiterated its 2008 sales target of 10 million iPhones, a goal that some analysts have questioned in the face of a weaker US economy.

Cisco shares finished off 0.5 per cent at US$24.29 and Intel shares dipped 0.1 per cent to US$20. Earlier, Intel shares had fallen as low as US$19.44.

In a speech in Florida, Federal Reserve Chairman Ben Bernanke said more declines in house prices could be expected.

The housing slump has had a damping effect on consumer confidence and spending, which is a strong element of economic growth.

Fed Vice Chairman Donald Kohn told a hearing of the Senate Banking Committee that US banks should consider slashing dividends to ease the strain on balance sheets laden with bad debts.

Also hurting financials was Wachovia's reduction of its earnings estimates on four US investment banks, including Bear Stearns Co Inc, saying the first quarter for investment banks would be one of the worst in several years. -- REUTERS

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