UNITED States stocks had the biggest weekly drop in almost four months last week on concern the economy will weaken as banks and brokerages face deeper losses and record energy costs depress consumer spending.

Lehman Brothers Holdings Inc, Morgan Stanley and Merrill Lynch & Co led losses among financial companies after analysts lowered profit estimates and the Federal Reserve signaled it will stop cutting interest rates. Oil surpassed US$130 a barrel and sales of previously owned homes matched a record low in April, sending consumer stocks to the second-biggest weekly drop this year.

"We keep getting little surprises in the financials that make people uneasy," said Jason Pride, who oversees US$6 billion as director of research at Haverford Trust in Radnor, Pennsylvania. "Market participants have to get away from the idea that everything is going to rebound immediately."

The S&P 500 fell 3.5 percent, the steepest decline since the first week of February, to 1,375.93 last week. The Dow Jones Industrial Average dropped 3.9 percent to 12,479.63. The Nasdaq Composite Index slid 3.3 percent to 2,444.67, Bloomberg News said.

All 10 industries in the S&P 500 declined, bringing the US stock benchmark to lowest since the week ended April 11. The slump steepened the S&P 500's decline for 2008 to 6.3 percent.

"You basically don't want to be in this market," Quincy Krosby, chief investment strategist at the Hartford in Connecticut, which manages US$360 billion, said in a Bloomberg Radio interview. "We'll probably pull back a bit more."

S&P 500 financial stocks dropped 6.1 percent, falling to the lowest level since the week of March 14. Citigroup Inc analyst Prashant Bhatia said Goldman Sachs Group Inc, Lehman and Morgan Stanley are in a "tough operating environment," while Oppenheimer & Co analyst Meredith Whitney predicted more than US$170 billion in writeoffs by the end of 2009. Financial companies worldwide have already recorded more than US$380 billion of losses tied to mortgage-related assets.

Lehman lost 17 percent, the most since the week of March 28, to US$36.11. Morgan Stanley fell 11 percent to US$41.83. Merrill Lynch declined 11 percent to US$43.36. Citigroup shed 8.7 percent to US$21.12.

Minutes from the Fed's April meeting suggested record energy costs and rising public expectations for inflation make it unlikely policy makers will continue rates. Fed officials also lowered economic growth outlook for 2008 by almost a full percentage point and raised inflation forecasts on curtailed bank lending and high oil prices.