American stocks fell the most in a month as a Kansas bank’s failure and speculation American International Group Inc. will post a loss heightened concern that credit writedowns will keep rattling the financial system.

AIG tumbled to a 13-year low after Credit Suisse Group said the insurer may lose $2.41 billion this quarter on mortgage-related writedowns. Washington Mutual Inc. and Huntington Bancshares Inc. each dropped more than 6% after Columbian Bank & Trust Co. became the ninth American bank to collapse this year. Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. led the Standard & Poor’s 500 Materials Index to a 2.3% retreat as gold and aluminum prices decreased.

“The market’s going to struggle until we get a clear indication that we know what the bottom is in the financials, and that may be a while,” a senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which manages about $17 billion, Peter Sorrentino, told Bloomberg Television.

The S&P 500 dropped 25.36, or 2%, to 1,266.84, ending a three-day advance. The Dow Jones Industrial Average slid 241.81, or 2.1%, to 11,386.25, with all 30 of its companies lower. The Nasdaq Composite Index decreased 49.12 to 2,365.59. About 865 million shares changed hands on the New York Stock Exchange, the slowest trading day of the year. Volume last week was 35% less than the year-to-date average.

Almost 10 stocks retreated for each that rose on the NYSE. All 10 industry groups in the S&P 500 dropped as the index extended its first weekly decline since July. The benchmark for American equities slipped 0.5% last week as energy prices climbed and concern grew that the government may need to bail out Fannie Mae and Freddie Mac.

Stocks fell even after a report showed sales of previously owned homes in America rose in July from a 10-year low as declining prices helped stabilize demand, and investor appetite increased for Freddie Mac’s weekly sale of short-term debt securities.

Morgan Stanley cut its year-end forecast for the S&P 500 on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.

“Our biggest concern for 2009 earnings estimates is that a combination of global growth slowdown, declining operating leverage, a stronger U.S. dollar, less share count reduction and a long tail to dysfunctional credit markets will create powerful headwinds for what appear to be very optimistic consensus expectations,” Abhijit Chakrabortti wrote in a note to clients dated yesterday.

AIG fell 5.5% to $18.78 for the biggest drop in the Dow average. An analyst from Credit Suisse, Thomas Gallagher, predicted AIG will lose 86 cents a share in the third quarter. Previously he forecast a 13-cent profit. “Recent deterioration” in debt holdings may cause losses in the firm’s credit-default swaps, Mr. Gallagher wrote yesterday in a research note. He rates New York-based AIG “neutral.”