Inflation fears dragged down financial stocks Thursday, with the American Banker index retreating to a 16-month low.

"It's getting ugly out there. Some of these banks haven't seen these levels in quite some time," said Jacqueline Reeves, an analyst at Putnam, Lovell, de Guardiola & Thornton Inc., as the American Banker index of the top 225 U.S. banks fell 2.3%, to 539.3, its lowest point since March 1997.

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