Bank stocks slumped late Tuesday as early optimism about a thawing credit market and industry interest in a government capital-buying program gave way to longer-term worries over credit quality.

The KBW Bank Index was in the black for most of the day, but a slide in the last hour of trading led to a 0.6% decline. The Dow Jones industrial average fell 2.5%, and the Standard & Poor's 500 lost 3.1%.

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