Wall Street financials fall as QE hopes fade Financial sector stocks led the US markets lower in early trading on Wednesday even as fresh payroll data added to rising sentiment about a labour market recovery. The S&P 500 financials index lost more than 1.2 per cent in the morning session as investors interpreted the chances of a third round of quantitative easing as being increasingly unlikely after the release of the notes from the Federal Open Market Committee's latest meeting. Morgan Stanley declined by 2.6 per cent to $18.87, the worst among the major banks, after it came under fire from the Federal Reserve on Tuesday for an alleged "pattern of misconduct and negligence" in its treatment of distressed borrowers through a since-sold mortgage subsidiary, Saxon Mortgage Services. The Fed is planning to fine Morgan Stanley and also require the bank to review tens of thousands of loan files to see if borrowers had wrongfully sized clients homes or were improperly denied loan restructurings. Citigroup and Bank of America were also among the leading losers, each falling more than 2 per cent to $35.55 and $9.29. The US private sector beat consensus forecasts and added 209,000 new jobs in March, according to data reported by ADP, the payroll processor. February's reading was adjusted up to 230,000 from 216,000 but the news was unable to lift markets. Overall, the S&P 500 fell 0.9 per cent to 1,400.65 and was in negative territory for a second straight session after hitting cycle highs to start the week. The Dow Jones Industrial Average dropped 1 per cent to 13,074.26 with none of the thirty blue-chip stocks that make up the index making gains. The Nasdaq Composite Index also declined by 1 per cent to 3,081.93. Yahoo! , the digital media company and search provider, rose 0.5 per cent to $15.26 as it said it would cut 2,000 jobs. "Our goal is to get back to our core purpose - putting our users and advertisers first - and we are moving aggressively to achieve that goal," said Scott Thompson, chief executive. Unfortunately, reaching that goal requires the tough decision to eliminate positions. We deeply value our people and all they've contributed to Yahoo!. US Airways gained nearly 2 per cent to $7.90 as it said March traffic increased by 4.5 per cent and on a report that claimed the company was speaking to creditors of American Airlines about the potential sales gains and cost savings of a merger between the two US carriers.