By John Spence

Financial stocks were mixed to start the week but some notable large-cap banking shares lost ground after Deutsche Bank cut its profit outlook for the troubled industry and warned of bigger credit losses in 2009.

Deutsche Bank analysts led by Mike Mayo in a research note Monday said they expect commercial bank loan losses to rise to 3% by the end of 2010, up from 1.5% in the third quarter of 2008.

"Reasons include an increased percentage of loans with higher losses [construction, credit cards, home equity], greater consumer leverage, and sooner problem recognition by banks," they wrote.

Deutsche Bank cut its profit estimates on 16 banks, including J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC).

Shares of J.P. Morgan and Wells Fargo were down about 4% in recent action, while the SPDR KBW Bank ETF (KBE) lost roughly 2%.

However, investors were cheered Monday by a report that U.S. construction spending fell less than expected in November. Investors will get a slew of economic data this week, including the Labor Department's December unemployment report, set to be released Friday.

Big percentage movers to the upside in the financial sector Monday included Morgan Stanley (MS), Allied Capital Corp. (ALD), Fannie Mae (FNM), American Capital (ACAS), KKR Financial Holdings (KFN) and Developers Diversified Realty Corp. (DDR).

Conversely, Shares of IntercontinentalExchange Inc. (ICE) were down 9% in midday trading Monday after some Wall Street analysts cut their profit outlooks for the company following the release of its December trading volume data.

"ICE reported quarterly over-the-counter (OTC) statistics that were significantly weaker than we were expecting for both energy and credit," said BMO Capital Markets in a note to clients Monday.

-John Spence; 415-439-6400; AskNewswires@dowjones.com

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