Stocks pull back as Citigroup write-downs stir concerns about widespread credit problems

NEW YORK — Stocks fell but regained some ground Monday as a stronger-than-expected reading on the service economy mitigated concerns about soured debt that sprang from news of more Citigroup Inc. write-downs.

The snapshot of the service sector appeared to quell some investor concerns that the troubles in the financial sector would prove onerous enough to spill into other areas of the economy. The Institute for Supply Management said the service sector grew at a faster-than-expected pace in October amid strength in new orders.

Despite the upbeat reading, the scope of Citi's expected losses — it sees another $8 billion to $11 billion in additional write-offs — led to renewed concerns among investors worldwide over credit. The expected losses came on top of the $6.5 billion in asset markdowns and other credit-related losses the company recorded in the third quarter.

The re-emergence of credit concerns — like those that roiled Wall Street this summer — comes as the market is also contending with concerns about the health of consumer spending and with rising expectations that the Federal Reserve is leaning away from cutting interest rates when it meets next month.

Some of the uncertainty about debt centers on who might be holding more bad debt, including some that is kept at arm's length in off-book investment vehicles but that nonetheless could require some banks to take a hit should the investments falter.

"Well you can see from the jigsaw pattern of things that there is a real tug-of-war going on between the parts of the economy that are doing wonderfully and that parts of the economy that are struggling," said John Merrill, chief investment officer at Tanglewood Capital Management in Houston.

In midday trading, the Dow Jones industrial average fell 62.27, or 0.46 percent, to 13,532.83. The Dow had been down more than 100 points in the opening minutes.

Broader stock indicators also fell. The Standard & Poor's 500 index fell 7.11, or 0.47 percent, to 1,502.54, and the Nasdaq composite index fell 14.51, or 0.52 percent, to 2,795.87.

The Russell 2000 index of smaller companies fell 6.55, or 0.82 percent, to 791.23.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.31 percent from 4.32 percent late Friday.

The ISM's index gauging the health of non-manufacturing industries rose to 55.8 from 54.8 in September. A reading above 50 signifies economic expansion.