By Rita Nazareth
(Bloomberg) – U.S. stocks tumbled the most since July after declines in personal spending and consumer confidence and the threat of a CIT Group Inc. bankruptcy raised concern over the durability of the economic recovery. The dollar and Treasuries gained, while commodities retreated.

CIT, the 101-year-old commercial lender, plunged as investor Carl Icahn agreed to support its prepackaged bankruptcy plan and supply a $1 billion credit line. American Express Co. and Walt Disney Co. slid as Commerce Department data showed a 0.5 percent drop in purchases and the Reuters/University of Michigan sentiment index retreated. MetLife Inc. lost 7 percent after posting a third straight quarterly loss.

The Standard & Poor’s 500 Index sank 2.5 percent to 1,039.72 at 1:50 p.m. in New York, erasing yesterday’s 2.3 percent surge triggered by government data showing the economy returned to growth after the worst slump in seven decades. The Dow Jones Industrial Average sank 228.69 points, or 2.3 percent, to 9,733.89. The VIX, the benchmark for U.S. stock options, jumped the most in a year on demand for loss protection.

“It’s all about momentum and sustainability,” said Alan Gayle, the Richmond, Virginia-based senior investment strategist at Ridgeworth Investments, which manages $60 billion. “The glass may be half full, but it’s filling slowly. Consumer sentiment is far from strong. Companies have yet to show a sustainable growth plan. I see additional volatility for stocks.”

The advance yesterday ended four sessions of losses spurred by growing concern that a 56 percent rally in the S&P 500 since March 9 had overtaken the outlook for earnings and economic growth. Today’s pullback came as the Commerce Department figures also showed incomes were unchanged in September. The report showed inflation was lower than the Federal Reserve’s long-term projection, indicating policy makers can keep rates low.

Confidence Slumps

Equities also fell today as the consumer confidence data signaled job losses may continue to restrain household spending. The final Michigan index of consumer sentiment decreased to 70.6 from 73.5 in September, which was the highest in more than a year. The index was forecast to fall to 70, the median in a Bloomberg survey of 60 economists.

Billionaire investor George Soros said the global economic recovery is “liable to run out of steam” and a “double dip” may follow in 2010 or 2011. He was speaking in Budapest today, in a lecture organized by the Central European University.

The dollar and yen rose against most major currencies on concern central banks around the world may be moving too fast to scale back measures designed to haul their economies out of the recession.

Central banks are signaling they are ready to withdraw stimulus measures even as economic reports show the recovery from the worst global recession since World War II may be tepid.

MetLife Slides

MetLife fell 7 percent to $34.25 after posting a third- quarter net loss of $620 million, or 79 cents a share, as revenue declined. Operating earnings, which exclude some investment and derivative results, were 87 cents a share, beating by a penny the average analyst estimate in a survey.

McAfee Inc. declined 6.7 percent to $40.84 after the second-biggest maker of security software reported third-quarter sales that fell short of some analysts’ estimates.

NYSE Euronext dropped 2.1 percent to $26.99. The world’s largest owner of stock exchanges reported a 28 percent decline in third-quarter profit as revenue from equity trading dropped and European competitors took market share. Excluding some costs, profit was 53 cents a share, beating the 46 cent average of 17 analysts surveyed by Bloomberg.

Commodities, Dollar

Gauges of energy and raw-materials producers lost at least 1.4 percent. Crude oil, copper and gold fell as the dollar rose, reducing the appeal of commodities as an alternative investment.

Exxon Mobil Corp., the world’s largest company by market value, dropped 2 percent to $72.45, while Freeport-McMoRan Copper & Gold Inc., the biggest publicly traded copper producer, retreated 2.4 percent to $76.27.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of some of the U.S.’s biggest trading partners, gained 0.4 percent.

The S&P 500 Financials Index fell 2 percent for the biggest decline among 10 industries after surging the most since July yesterday. JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley fell at least 2.1 percent.

CIT Group was halted as it said that it has entered into an agreement with Carl Icahn to support its restructuring plan and secured an incremental $1 billion committed line of credit from Icahn Capital LP to provide supplemental liquidity for CIT as it pursues that plan.

‘Big Drag’

“News that CIT is likely filing for bankruptcy is acting as a big drag on financials,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages about $2 billion in San Antonio. “If they’re having trouble getting funding to keep the company afloat, then you’ve got to wonder about other financial companies. There might be other shoes to drop.”

The market for initial public offerings, hurt by the worst returns in at least 14 years, suffered another setback after AEI pulled its sale.

Enron Corp.’s former international energy business postponed its IPO yesterday, citing “market conditions” after underwriters earlier cut it by 58 percent to 21 million shares and lowered the forecast price range. The expected size of the offering had fallen to under $300 million from $800 million after Ashmore Group Plc, the London-based fund manager that controls the company, withdrew.

Las Vegas Sands Corp. rallied 2.9 percent to $15.19. The casino company run by billionaire Sheldon Adelson said Las Vegas convention business is recovering, after collapsing during the recession.

Genworth Gains

Genworth Financial Inc. added 2.8 percent to $10.46. The life insurer and mortgage guarantor reported its first profit in six quarters and beat analysts’ estimates. Operating income available to common shareholders, which excludes some investment results, was 18 cents a share, beating by 15 cents the average estimate of 16 analysts surveyed by Bloomberg.

So far, earnings-per-share have topped estimates at 81 percent of the companies in the S&P 500 that posted third- quarter results, which would be a record proportion for a full quarter, according to Bloomberg data going back to 1993.

Deutsche Bank AG boosted its estimates for economic growth in the second half of 2009 and 2010, citing a “noticeable pickup in demand” following yesterday’s third-quarter report.

Gross domestic product growth estimates were raised to 4 percent in the current quarter, 4.5 percent in the first quarter of 2010, 3.5 percent in the second quarter, 3.7 percent in the third quarter and 3.8 percent in the fourth quarter. The previous forecasts were 2.5 percent, 2.6 percent, 3.1 percent, 3.3 percent and 3.8 percent.

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