Wall St slides as Lloyds loss adds to bank fears

NEW YORK (Reuters) - U.S. stocks fell in volatile trading on Friday as financial shares slid after Britain's Lloyds Banking Group posted a wider-than-expected loss, adding to persistent worries about the health of the banking sector.

Shares of Bank of America fell 3.2 percent to $5.68 on the New York Stock Exchange, while JPMorgan shed 5 percent to $24.88.

The KBW Bank index <.BKX> fell 4.5 percent, taking its weekly decline so far to more than 13 percent.

"The significant loss reported by Lloyds has been a negative catalyst in general today," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. "We're seeing a little bit of a sell-off following the rally late yesterday, which caught a lot of people by surprise."

Stocks rallied late on Thursday after Reuters reported the Obama administration was working on a program to subsidize mortgage payments for troubled homeowners.

Financials fell after Lloyds Banking Group said its HBOS unit made a pretax loss of 8.5 billion pounds ($12.3 billion) for 2008, driven by 7 billion pounds in bad corporate loans, raising fears that the already partly nationalized bank will need further state help.

The Dow Jones industrial average <.DJI> slipped 70.09 points, or 0.88 percent, to 7,862.67. The Standard & Poor's 500 Index <.SPX> fell 6.95 points, or 0.83 percent, to 828.24. The Nasdaq Composite Index <.IXIC> shed 6.36 points, or 0.41 percent, to 1,535.35.

For the week the S&P 500 was down more than 4 percent, on track to close its worst week since setting a bear market low in November.

Wells Fargo shrank 5.6 percent to $15.86, after disclosing late Thursday that its fourth-quarter loss was larger than it had initially reported.

Optimism over a $787 billion economic stimulus package set to be approved by Congress partly offset Friday's decline, but consumer stocks dropped on skepticism that consumers will rush to spend.

Wal-Mart Stores Inc shares fell 2.4 percent to $46.99, making it a top drag in the Dow. Home Depot was also down 2.8 percent.

(Additional reporting by Chuck Mikolajczak; Editing by Leslie Adler)

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