By Whitney Kisling Dec. 11 (Bloomberg) -- U.S. stocks declined the most in a week after lawmakers said a $14 billion plan to rescue the nation’s auto industry lacks the votes to pass the Senate and initial jobless claims jumped to a 26-year high. General Motors Corp. and Ford Motor Co. slid more than 10 percent. Bank of America Corp. slumped 11 percent and General Electric Co. tumbled 5.3 percent following government reports that 573,000 people applied for first-time unemployment benefits last week and the trade deficit grew 1.1 percent as exports decreased. Ciena Corp. plunged 20 percent, its steepest drop in three months, after the network-equipment maker posted a fourth- quarter loss. The Standard & Poor’s 500 Index fell 2.9 percent to 873.59, with financial shares posting the biggest retreat among 10 industries. The Dow Jones Industrial Average decreased 196.33 points, or 2.2 percent, to 8,565.09. The Russell 2000 Index of small companies lost 5.3 percent to 451.21. “Whether the auto bailout turns out to be a Band-Aid or a real long-term plan is uncertain, and as we all know uncertainty is anathema to the equity markets,” Richard Weiss, who oversees $60 billion as chief investment officer at City National Bank in Beverly Hills, California, told Bloomberg Television. “Right now it’s political football.” The market’s early declines came as the reports on jobless claims and a drop in exports spurred concern that the yearlong recession is deepening. The S&P 500 has tumbled 44 percent from its record last year after the collapse of the subprime mortgage market caused profits to decrease for five consecutive quarters. Short-Lived Gains Stocks turned higher in midday trading as Saudi Arabia, the world’s biggest crude producer, said it cut output, propelling oil to its steepest gain in five weeks and Hess Corp. to a 6.8 percent advance. Benchmark indexes resumed their descent as prospects dimmed that the White House will convince Senate Republicans to vote in favor of the auto rescue. About 1.47 billion shares changed hands on the floor of the NYSE, 9.5 percent less than the three-month daily average. GM slid 48 cents to $4.12, while Ford lost 35 cents to $2.90. The bailout failed to garner enough support to pass the Senate, as Democratic leaders and the Bush administration raced to save the car industry and the millions of jobs dependent on it before GM and Chrysler LLC burn through their remaining cash. For GM, that could be in three weeks. The House voted 237-170 yesterday to approve emergency loans. The Bloomberg Michigan Auto Group Index of carmakers and parts suppliers dropped more than 5 percent, its biggest decline since Dec. 1, as seven of its eight companies fell. Economy Watch Bank of America fell 11 percent to $14.91, while GE, the world’s biggest maker of power-generation equipment, dropped 5.3 percent to $17.05. The Labor Department said initial jobless claims increased by a bigger-than-forecast 58,000 to 573,000 in the week ended Dec. 6, the highest level since November 1982. The slump in exports to a seven-month low, caused by recessions spreading to U.S. trading partners, spurred a widening in the trade deficit to $57.2 billion in October, the Commerce Department said. “Jobless claims have grown pretty significantly,” said John Davidson, president of PartnerRe Asset Management Corp., which oversees $12 billion in Greenwich, Connecticut. “All sectors of the economy are affected, and it’s going to be a tough Christmas for retailers and for consumers.” Ciena Tumbles Ciena slumped 20 percent, the most since Sept. 4, to $6.05. The maker of network equipment for customers such as AT&T Inc. posted an adjusted fourth-quarter loss of 10 cents a share on a cutback in orders from telephone companies. Analysts surveyed by Bloomberg expected 4 cents in profit. Microsoft Corp. had its profit estimates cut at Morgan Stanley on a deterioration in business following slowing sales predictions from chipmakers. The world’s largest software developer declined 5.6 percent to $19.45. U.S. Bancorp fell 10 percent to $24.85 after saying at a Goldman Sachs Group Inc. conference that it expects net charge- offs, or the cost of bad loans that won’t fully be repaid, of about $600 million to $650 million and an impairment of $200 million to $300 million this quarter. The shares have dropped 22 percent this year, better than the 52 percent slide in the KBW Bank Index. Financial companies, which led the S&P 500’s rebound from an 11-year low on Nov. 20 with a 27 percent rally, slid 8.5 percent today. JPMorgan Chase & Co., the largest U.S. bank, dropped 11 percent to $29.94, while Citigroup Inc. fell 8.8 percent to $7.57 and American Express Co. declined 6.6 percent to $20.13. Real-Estate Slump Real estate companies in the S&P 500 fell 16 percent as a group. U.S. foreclosure filings climbed 28 percent last month from a year earlier and a brewing “storm” of new defaults and job losses could force 1 million homeowners from their properties next year, RealtyTrac Inc. said. Developers Diversified Realty Corp. dropped 20 percent to $5.04. Prologis, the largest warehouse owner, slumped 25 percent to $5.60. A group of health care companies rose 0.2 percent, the only industry of 10 in the S&P 500 to gain. UnitedHealth Group Inc., the largest U.S. medical insurer, led the advance, surging 8.9 percent to $23.49. Eli Lilly & Co. also rallied, even after it gave a 2009 profit forecasts that missed analysts’ estimates, joining Merck & Co. as the second major U.S. drugmaker to trim expectations. The shares gained 1.7 percent to $35.62. ‘Clean the Deck’ “If companies are willing to clean the deck and make adjustments so numbers are more rational and real, they could be getting rewarded by investors,” said Jason Cooper, who helps manage about $3.5 billion at 1st Source Investment Advisors in South Bend, Indiana. Europe’s Dow Jones Stoxx 600 Index fell 0.8 percent today as concern that the economic slowdown from China to America is deepening weighed on automakers, overshadowing a rally in oil producers. The MSCI Asia Pacific Index rose for a fifth day, the longest winning streak in seven months, as South Korea cut interest rates to a record low. Hess, the fifth-biggest U.S. oil producer, had the second- biggest gain in the S&P 500 after crude rose and the company said it plans to drill eight exploration wells off northwest Australia next year. The shares rallied 6.8 percent to $47.71. Crude oil for January delivery rose 10 percent to $47.98 a barrel in New York, the highest price since Dec. 1 and the biggest gain since Nov. 4. Rebound From 11-Year Low The S&P 500 this week marked a technical end to a 14-month bear market, extending its rebound from an 11-year low last month to as much as 21 percent, as President-elect Barack Obama stepped up efforts to pull the economy out of a recession. The VIX, which measures the cost of using options as insurance against declines in the S&P 500, has dropped 31 percent since Nov. 20, when it rose to 80.86, the highest in its 18-year history. The VIX, as the Chicago Board Options Exchange Volatility Index is know, increased 0.1 percent to 55.78 today. S&P 500 companies reported an average 18 percent decline in profits in the third quarter, prompting analysts to cut estimates for next year. They now project earnings growth of 8.2 percent in 2009, about one-third of their forecast of 23 percent at the end of the third quarter, according to data compiled by Bloomberg. To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

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