US STOCKS-Wachovia hits banks, cancels oil gains; stocks slip

(Updates to close)

By Kristina Cooke

NEW YORK, April 14 (Reuters) - U.S. stocks edged lower on Monday after an unexpected quarterly loss from Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) dragged down the financial sector, overshadowing strong gains in energy companies as oil closed at a record.

Goldman Sachs added to the market's negative tone after it said the quarterly earnings season, which is just starting, looks "awful" and that reports still to come will be generally disappointing and drive the S&P 500 lower in coming weeks.

Wachovia, the No. 4 U.S. bank, fueled fears about anemic earnings when it said it would cut its dividend, eliminate jobs and raise capital of $7 billion after becoming the latest casualty of the global credit crunch. For details, see [ID:nN14343221]. Its stock dropped 8 percent, while the S&P's financial-sector index fell 2.4 percent.

"Today all the troubles were in financial services. This is expected to be a big week in earnings and it feels like the calm before a potential storm when we get more earnings information," said Linda Duessel, market strategist at Federated Investors in Pittsburgh.

Still, energy companies kept index losses in check as the price of oil CLc1 rose to a record settlement just short of $112 a barrel.

A surprising rise in U.S. retail sales also helped, after data showed a modest increase in March, pushed up by a jump in gasoline sales, according to a government report.

"Retail sales were a little bit better and there is a rotating into energy due to the belief that the high price of oil could have staying power," Duessel said.  Continued...