Financial stocks fell for third day in a row Wednesday as retail sales news dragged down the overall market.

The KBW Bank Index dropped 6.5%.

"The market is using every bit of excuse to pull back from its recent gain," said Peter Cardillo, the chief market economist at Avalon Partners Inc. "The financials are leading the market lower today. I guess they led the market higher, and now they're leading it lower."

Frank Barkocy, director of research at Mendon Capital Advisors Corp., said bank shares have been depressed by recent discounted stock offerings from Wells Fargo & Co. and BB&T Corp., among other companies.

"Stock offerings by the larger banks in the last couple days have put pressure on these stocks, and there is a concern that others will be coming to market" at a discount, Barkocy said.

Retail sales data served to deflate investor optimism that the economy was turning a corner following a two-month rally. The Commerce Department said retail sales fell last month by a seasonally adjusted rate of 0.4%. Economists on average had expected sales to be flat, since favorable in-store traffic figures had been taken as a sign that consumer spending was improving.

The Dow Jones industrial average fell 2.18%, and the S&P 500 fell 2.69%.

Citigroup Inc.'s announcement that it was using its $45 billion of federal aid to make nearly $45 billion of loans failed to lift the New York company's shares, which dropped 25 cents, to $3.41.

JPMorgan Chase & Co. fell 3.7%. Bank of America Corp. dropped 10.2%. Wells Fargo & Co. fell 5.84%, and U.S. Bancorp fell 2.74%.

Among regionals, PNC Financial Services Group Inc. dropped 5.78%. SunTrust Banks Inc. fell 6.85%. Fifth Third Bancorp dropped 14.7%. Synovus Financial Corp. fell 7.84%, and BB&T fell 4.44%.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.