Financial stocks and exchange traded funds (ETFs) fell midday after investors became worried that Bank of America (BAC) might not complete a proposed buyout of Countrywide Financial (CFC).

A brokerage said Bank of America was either going to renegotiate the deal or walk away from it altogether, reports Jennifer Coogan for Reuters. The news kicked the market while it was already down from the failed Yahoo (YHOO)/Microsoft (MSFT) deal.

On the upside, the service sector defied expectations and grew in April, reports Burton Frierson for Reuters. It was the first time the sector grew in four months. It covers financial, airlines, hotels and restaurants and represents roughly 80% of the U.S. economy.

The market responded to the report positively, but then resumed its southward direction.

Financial ETFs were down in trading today, as well. Among them:

• Regional Bank HOLDRs (RKH): down 1.6% year-to-date; Bank of America is 9.1%
• iShares Dow Jones US Financial Services (IYG): down 4% year-to-date; Bank of America is 10.9%
• Vanguard Financials (VFH): down 2.7% year-to-date; Bank of America is 6.6%

Tags: Financial, Sector ETFs, Technology