Stocks tumble

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The Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) are both down on news of downgrades in the financial sector and worries about consumer confidence.

At 9:55 a.m. ET the small-cap index had lost 9.53 points, or 1.21%, to 779.92. The Dow had shed 84.05 points, or 0.63%, to 13,238.08.

The financial sector is helping the bears this morning after industry giant Merrill Lynch & Co., Inc. (NYSE: MER) downgraded shares of investments banks The Bear Stearns Companies Inc. (NYSE: BSC), Lehman Brothers Holdings Inc. (NYSE: LEH) and Citigroup Inc. (NYSE: C) to “neutral” from “buy.”  The New York-based company cited renewed global credit concerns that could hurt earnings.

Contributing to the pessimistic mood is news that U.S. house prices declined 3.2% in the second quarter of 2007, compared with the same quarter of 2006, according to the S&P/Case-Shiller U.S. National Home Price Index. Home prices are now at their lowest levels in more than a decade, and many economists believe that the declines will continue in the coming quarters.

Elsewhere, the Conference Board will release its monthly consumer confidence index at 10 a.m. ET. Observers expect to see a decline, as tighter lending conditions and the recent financial turmoil have most likely pinched wallets.

The following are the most actively traded companies with market capitalizations under $500 million: