By Chuck Mikolajczak

Dow components Verizon Communications Inc and AT&T stumbled after Bernstein Research downgraded both companies, saying the stocks have "come too far, too fast" as it forecast slower wireless growth and worsening land-line performance.

Financial stocks also slumped after Deutsche Bank cut its earnings forecast on 16 large commercial banks, including JPMorgan Chase & Co , another Dow component. JPMorgan fell nearly 7 percent.

Stocks had closed out a holiday-shortened week with a more than 6 percent gain as investors bet a recovery was on the horizon after the worst year since the Great Depression.

"There's gonna be a little bit of pressure on the market because of its performance the last six or seven weeks," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "People are more willing to ring the register and take profits than sit on the sidelines."

The Dow Jones industrial average <.DJI> fell 81.80 points, or 0.91 percent, to 8,952.89. The Standard & Poor's 500 Index <.SPX> shed 4.35 points, or 0.47 percent, to 927.45. The Nasdaq Composite Index <.IXIC> slid 4.18 points, or 0.26 percent, to 1,628.03.

The S&P index of telecom stocks <.GSPL> fell 3.9 percent after Bernstein Research cut its ratings and price targets for AT&T and Verizon. Verizon fell 6.2 percent to $32.48, while AT&T lost 3.4 percent to $28.43.

Financial stocks fell after Deutsche Bank said loan losses for U.S. commercial banks could rise 3 percent by the end of 2010, hurt by a larger percentage of bad loans, greater consumer leverage and faster problem recognition by banks. That compares to loan losses of 1.5 percent in the third quarter of 2008.

The KBW Banks Index <.BKX> fell 3.7 percent, while the S&P index of financial shares <.GSPF> shed 2.5 percent. JPMorgan lost 6.7 percent to $29.25 and was one of the top drags on the Dow.

Homebuilder shares jumped after the U.S. Commerce Department released a report on U.S. construction spending that showed building at the end of the 2008 was stronger than Wall Street had expected.

The Dow Jones U.S. Homebuilders <.DJUSHB> index was up 6.7 percent, led by Pulte Homes , which rose 8.7 percent to $12.14.

Stocks had turned briefly positive and the Dow cut losses after General Motors reported December sales that were better than expectations.

Dow component General Motors Corp rose 1.6 percent to $3.71 after it said December U.S. sales fell 31 percent. Ford shares also rose after it reported December sales, gaining 4.9 percent to $2.58.

Energy stocks rose as oil prices jumped more than 5 percent in New York on supply fears on Israel's deepening incursion into Gaza and the dispute between Russia and Ukraine over natural gas. The S&P index of energy shares <.GSPE> was up 1.4 percent, helped by an 8.5 percent gain in Consol Energy .

On the Nasdaq, Apple Inc jumped 4.2 percent to $95.58 after Chief Executive Steve Jobs reassured investors about his health.

Volume on the New York Stock Exchange totaled about 1.3 million shares, and about 1.79 billion shares traded on the Nasdaq.

Advancers outnumbered decliners on the New York Stock Exchange by a ratio of about 2 to 1, while on the Nasdaq advancers held a slight advantage.

(Editing by Leslie Adler)