Stocks in the United States fell on Monday after Friday's collapse of IndyMac outweighed earlier optimism over a federal plan to stabilize Fannie Mae and Freddie Mac.
The two companies have been put under Federal Reserve oversight and given a bigger line of credit.
On Sunday, the U.S. Treasury and the Federal Reserve said they would lend money and buy equity if needed to rescue the two pillars of the U.S. housing market, sending shares soaring early on Monday.
But the gains fizzled as analysts noted any direct government investment in Fannie Mae and Freddie Mac would further dilute existing shares.
Shares of Fannie Mae fell 5.1% to $US9.73, while those of Freddie Mac slid 8.3% to $US7.11.
Investors were also worried about the possibilty of more bank failures after regulators seized the mortgage lender IndyMac Bancorp Inc late Friday, following withdrawals by clients. Shares of regional banks were down.
IndyMac is the fifth US bank to fail this year. It will reopen on Monday as IndyMac Federal Bank under Federal Deposit Insurance Corp supervision.
However, the Dow's drop was cushioned by the performance of stocks like McDonald's and Coca-Cola, which tend to weather economic downturns because consumers still buy their products even in tough times.
Apple shares gained 0.8% to $US173.88 on Nasdaq after the company said it sold 1 million units of the new iPhone in its initial weekend.
The Dow Jones industrial average fell 45.35 points, or 0.41%, to 11,055.19. Standard & Poor's 500 Index lost 11.19 points, or 0.9%, to 1,228.30. The Nasdaq Composite Index slipped 26.21 points, or 1.17%, to 2,212.87.
Trading volume was low on the New York Stock Exchange, with about 1.41 billion shares changing hands. About 2.07 billion shares were traded on the Nasdaq.
However, European shares rose on Monday.
The FTSEurofirst 300 index of top European shares was up 0.7% at 1,133.95 points.
In Frankfurt, the DAX index ended at 6200.25 points, up 46.95 or 0.76%. In Paris, the CAC-40 index closed at 4142.53 points, up 41.89 or 1.02%. In Zurich, the Swiss market index closed at 6675.26 points, up 36.37 or 0.55%.
In Britain, the FTSE 100 closed up 38.8 points, or 0.7%, at 5,300.4.
NZ market down
The New Zealand share market's NZX 50 index was down 41 points, or 1.3%, to 3080 on turnover of $87 million on Monday.
Telecom was down 6 cents to $3.33, Contact Energy was down 20c to $7.40 and Fletcher Building was down 13c to $6.25.
But Sky City Entertainment was up 2c to $3.02 after confirming it would make a profit of between $108 - $110 million.
After weaker retail figures, The Warehouse was down 10c to $3.90, Hallenstein Glasson was up 6c to $2.63 and Pumpkin Patch was down 1c to $1.43.
The Australian 200 Index fell 59 points to close at 4921.
In the currency markets: at 6.30am, the New Zealand dollar was trading at US76.43 cents, 78.61 Australian cents, 38.31 pence, 81.11 yen and 0.4803 euro. The Trade Weighted Index was at 67.61.