NEW YORK (Reuters) – Banking stocks fell sharply on Monday, leading U.S. stocks lower in a low-volume session as investors again focused on the uncertain outlook in the euro zone.

Shares of the biggest U.S. financial institutions dropped sharply, with Bank of America Corp (BAC.N) off 3.9 percent, briefly hitting $5 a share, its lowest since March 2009. Citigroup Inc (C.N) fell 5 percent to $24.72.

Comments from Mario Draghi, president of the European Central Bank, weighed on sentiment anew, after he said the economic outlook faced substantial downside risks, adding that 2012 would be a difficult year for banks.

"Even though he's not calling for that, he highlights it, it's a negative story, and the market reacts to the negative headline," said Ken Polcari, managing director at ICAP Equities in New York.

Draghi, speaking before the European Parliament economics and monetary affairs committee, remained reluctant to buy more bonds of European Union governments, a step some investors believed was key to easing the crisis in the near term.

Traders also cited a Wall Street Journal report that the Federal Reserve was keen for U.S. banks to hold more capital than required by U.S. law as weighing on the bank shares.

Investors eyed developments in North Korea after the death of its leader, Kim Jong-il, and as state-controlled media hailed his untested son as the "Great Successor." [ID:nL3E7NJ1RQ]

After falling nearly 3 percent last week, Monday's losses brought the S&P 500 within striking distance of the 1,200 level, cited by traders as an important support level.

The Dow Jones industrial average (.DJI) dropped 62.06 points, or 0.52 percent, to 11,804.33. The Standard & Poor's 500 Index (.SPX) fell 9.26 points, or 0.76 percent, to 1,210.40. The Nasdaq Composite Index (.IXIC) lost 15.73 points, or 0.62 percent, to 2,539.60.

There were signs that cautious investors were rotating into defensive sectors. The S&P healthcare sector (.GSPA) added 0.2 percent.

Adding to worries, Fitch warned Friday it may downgrade the ratings of France and six other euro zone countries, saying a comprehensive solution to the region's debt crisis was "technically and politically beyond reach".

Major S&P 500 levels to watch this week were 1,200 and 1,260, said Ari Wald, an analyst at BBH Equity Strategy Research Team in New York.

"1,200 is support from the index's downward sloping 100-day moving average and the uptrend connecting its October and November lows. A breach of this demand could stir additional technical selling to 1,130-1,150 intermediate-term support," he said.

"1,260 is resistance from the index's downward sloping 200-day moving average and the downtrend connecting its October and December peaks. A breakout above this supply would argue for continued seasonal strength through the first quarter of 2012."

(Reporting by Edward Krudy; additional reporting by Rodrigo Campos; editing by Jeffrey Benkoe)

PARIS/FRANKFURT (Reuters) – European competition authorities are ready to block the $9 billion merger of NYSE Euronext and Deutsche Boerse unless the companies agree to new asset sales, Le Monde newspaper reported on Tuesday.

EU regulators met the exchanges at a meeting on Tuesday and discussed whether rivals and users felt that their proposals addressed competition concerns.

If the feedback is negative, it would be up to the companies to offer more substantial concessions or run the risk of the European Commission blocking the merger.

Le Monde said the authorities currently consider that the merger would lead to a duopoly on the European derivatives market and in the clearing business.

A person close to Deutsche Boerse said that it is premature to conclude anything has passed or failed in terms of regulatory approval.

"Negotiations are ongoing, and we're still in the process of bluff and counterbluff," the source who is familiar with the company's thinking said.

A spokesman for Deutsche Boerse said the article was "highly speculative" and declined to comment. A spokeswoman for NYSE Euronext in Paris declined to comment.

Deutsche Boerse shares extended losses and were down 1.7 percent at 44.19 euros by 1345 GMT, slightly underperforming a 1 percent weaker STOXX Europe 600 Financial Services index.

(Reporting by James Regan, Foo Yun Chee, Harro ten Wolde and Edward Taylor; Editing by Maria Sheahan)

NEW YORK (Reuters) – Stocks fell for a fifth day in a row on Tuesday, having lost more than 5 percent over that period as borrowing costs in Spain hit another record high.

The market remains anchored by concerns about the worsening debt crisis in Europe where rising yields suggest the outlook continues to deteriorate and stocks have been tied to the European credit market's volatility.

News that the International Monetary Fund would make short-term credit available for struggling euro-zone countries gave stocks a temporary boost, but the gains quickly evaporated.

Spain's short-term borrowing costs hit a 14-year high on Tuesday as political uncertainty about a solution to the euro zone's sovereign debt crisis punished another vulnerable southern European country.

The S&P managed to hold near 1,187, seen as the next technical support, representing the 61.8 percent retracement of the 2011 high to low. The index fell below the 1200 mark last week.

Joseph Cusick, senior market analyst at OptionsXpress Holdings Inc in Chicago, said the stock market is currently battered and is reaching a technically oversold level.

"I will be watching the 1,200 level on the S&P. If reached, it would reclaim about 50 percent of the latest two-day pullback, potentially acting as a pivot area for the bulls."

The Dow Jones industrial average (.DJI) was down 53.59 points, or 0.46 percent, at 11,493.72. The Standard & Poor's 500 Index (.SPX) was down 4.94 points, or 0.41 percent, at 1,188.04. The Nasdaq Composite Index (.IXIC) was down 1.86 points, or 0.07 percent, at 2,521.28.

Before Wall Street's opening bell, data showed the U.S. economy grew at a 2 percent annual rate in the third quarter. While down from the government's prior estimate of 2.5 percent one month ago, reduced inventories and solid consumer spending could result in better-than-expected growth in the fourth quarter.

The market showed a muted reaction to minutes from the Federal Reserve's recent policy meeting in which some officials said they were prepared to do more to support the domestic economy. But the committee decided to hold off taking action amid an uncertain outlook.

Hewlett-Packard Co (HPQ.N) dropped 0.8 percent to $26.65 after the computer and printer maker gave a 2012 profit outlook that was below consensus late Monday.

Among Nasdaq stocks, Groupon Inc (GRPN.O) slumped as much as 14 percent on Monday on concern about increased competition, leaving shares of the largest daily deal company at $20.07 compared with their $20 initial public offering price.

In total, about 6.99 billion shares exchanged hands on the New York Stock Exchange, NYSE Amex and Nasdaq, below the current daily average of 8 billion shares.

On the NYSE, decliners beat advancers by 18 to 11, while on the Nasdaq, about two stocks fell for every one that rose.

(Reporting by Angela Moon, Editing by Kenneth Barry)

TOKYO (Reuters) – Tokyo Electric Power Co is likely to sell a 20 percent stake in wind power developer Eurus Energy Holdings to trading firm Toyota Tsusho to help raise funds to compensate victims of Japan's nuclear crisis, a newspaper said on Sunday.

Tokyo Electric, the owner of the crippled Fukushima Daiichi nuclear plant, is expected to sell the stake for a little less than 20 billion yen ($262 million) and post a profit of about 10 billion, which will be used for compensation, the Nikkei business daily reported.

The company, better known as Tepco, has issued a statement, saying that it has not made such a decision.

Tepco is still reeling from the radiation crisis at its Fukushima atomic plant triggered by the March 11 earthquake and tsunami in Japan's northeast.

It last month began accepting victims' applications for compensation, but the troubled utility needs to find funds to foot the cost and is seeking help from a taxpayer-funded bailout body.

Eurus Energy, currently owned 60 percent by Tepco and the rest by Toyota Tsusho, is Japan's biggest wind power developer and also operates wind power plants abroad.

Tepco is preparing an extraordinary operating plan, likely to include asset sales, cost cuts and other restructuring measures, and get government approval before receiving bailout funds.

(Reporting by Osamu Tsukimori; Editing by Yoko Nishikawa)

TOKYO (Reuters) – Tokyo Electric Power Co (9501.T) is likely to sell a 20 percent stake in wind power developer Eurus Energy Holdings to trading firm Toyota Tsusho (8015.T) to help raise funds to compensate victims of Japan's nuclear crisis, a newspaper said on Sunday.

Tokyo Electric, the owner of the crippled Fukushima Daiichi nuclear plant, is expected to sell the stake for a little less than 20 billion yen ($262 million) and post a profit of about 10 billion, which will be used for compensation, the Nikkei business daily reported.

The company, better known as Tepco, has issued a statement, saying that it has not made such a decision.

Tepco is still reeling from the radiation crisis at its Fukushima atomic plant triggered by the March 11 earthquake and tsunami in Japan's northeast.

It last month began accepting victims' applications for compensation, but the troubled utility needs to find funds to foot the cost and is seeking help from a taxpayer-funded bailout body.

Eurus Energy, currently owned 60 percent by Tepco and the rest by Toyota Tsusho, is Japan's biggest wind power developer and also operates wind power plants abroad.

Tepco is preparing an extraordinary operating plan, likely to include asset sales, cost cuts and other restructuring measures, and get government approval before receiving bailout funds.

(Reporting by Osamu Tsukimori; Editing by Yoko Nishikawa)