YAHOO[BRIEFING.COM]: Financial stocks tumbled 16.7% Tuesday, registering their worst single-session decline since a 17% drop Dec. 1. Ongoing weakness in the financial sector has rekindled pessimism in the broader market.

Losses in both the financial sector and the S&P 500 mounted steadily as the session progressed. The selling effort took the S&P 500 past December lows as roughly 97% of the companies in the index finished the session with losses.

Investment services outfit State Street (STT 14.89, -21.46) saw its market cap halved after it updated late last week certain risk factors, and indicated certain cash-like investments have lost value, which has the company holding some $5.5 billion in unrealized after-tax losses. The disclosures overshadowed better-than-expected fourth quarter earnings.

Citigroup (C 2.80, -0.70) continues looking to narrow its operational focus as it moves away from its status as a financial supermarket amid ongoing challenges. Reports indicate Citigroup is looking to divest its Japanese retail brokerage unit after recently selling part of its U.S. unit, Smith Barney, to Morgan Stanley (MS 13.10, -2.49). After the closing bell Citi announced it is slashing its quarterly dividend to a penny per share from $0.16 per share.

Shares of Citi, along with other major financial services giants JPMorgan Chase (JPM 18.09, -4.73) and Bank of America (BAC 5.10, -2.08) all closed near multiyear lows amid the realization that banks have a long, arduous path to recovery.

A week ago the trio reported their latest quarterly results, which helped spur a 16.5% weekly loss in the sector.

European bank shares were also under stiff pressure. Royal Bank of Scotland (RBS 3.33, -7.52) may face a record loss valued at more than $40 billion for 2008, which has the British government considering increasing its stake in the bank by converting preferred stock into common shares. Shares of RBS dropped more than 70% in U.S. trading.

Barclays (BCS 4.16, -3.09) fell more than 40% this session as investors remain concerned Britain's government will take a stake in the outfit. The fears were compounded by word the government may be making broader efforts to restore the country's banking system, which many believe smacks of nationalization.

Though financials fared the worst, all 10 of the major economic sectors succumbed to selling pressure. Even defensive-oriented sectors like utilities (-1.0%), consumer staples (-1.5%), and health care (-2.6%) were hit.

Health care giant and Dow component Johnson & Johnson (JNJ 56.75, -0.69) finished lower as investors weighed word that the company expects 2009 earnings to range between $4.45 and $4.55 per share after earning $4.55 per share last year. The consensus calls for $4.60 per share, underscoring the company's tepid outlook. Still, Johnson & Johnson reported fourth quarter earnings of $0.94 per share, which exceeded expectations by $0.02.DJ30 -332.13 NASDAQ -88.47 SP500 -44.90 NASDAQ Dec/Adv/Vol 2350/362/2.02 bln NYSE Dec/Adv/Vol 2785/321/1.72 bln