Dow Jones falls more than 200 points as Grexit fears grow

(Reuters) - Most U.S. stocks fell on Monday after Greek bailout talks collapsed, intensifying fears that the country could be the first to exit the euro zone.

Trading was heavy, with investors dropping riskier assets such as equities and commodities. The S&P 500 <.SPX> fell nearly 1 percent and nine of the 10 main S&P sectors retreated. The only group to rise was utilities, considered a defensive play.

The European Central Bank froze funding to Greek banks, forcing Athens to shut banks for a week to keep them from collapsing.

"A week ago, it seemed very likely that we were close to having a resolution, and now all of a sudden we?re waking up to capital controls?" said Leo Grohowski, who oversees about $194 billion in client assets as chief investment officer at BNY Mellon Wealth Management in New York.

"I?m not confident that today reflects all the bad news that could happen. Investors are really bumping up the odds that Greece will exit the euro," Grohowski said.

S&P 500 index futures fell nearly 2 percent in premarket trading, though indexes pared their losses in early trading after a Greek government official said some banks would open on Thursday for the payment of pensions.

Greece faces default if it does not repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund on Tuesday.

While the Greek economy is small, and U.S. corporations have limited exposure to the country, investors are concerned about the fallout across Europe if the country exits the euro zone.

A snap Reuters poll of economists and traders found a median 45 percent probability that Greece would leave euro zone.

In U.S. data, the pending home sales index, issued by the National Association of Realtors, rose to a nine-year high.

Investors have been keeping a keen eye on data to see if the U.S. economy has recovered from a slow start at the beginning of the year. The Federal Reserve has said it will raise rates when it sees a sustained rebound in the economy.

A September interest rate hike is "very much in play" if the U.S. economy continues to strengthen, though the Federal Reserve could also wait until December to start tightening policy, New York Fed President William Dudley told the Financial Times in an interview.

The CBOE Volatility index <.VIX> spiked 16 percent to 16.27. While the so-called "fear index" remains below its historical average of 20, it is at its highest since early May.

At 10:39 a.m. EDT the Dow Jones industrial average <.DJI> was down 158.95 points, or 0.89 percent, at 17,787.73, the S&P 500 <.SPX> was down 18.65 points, or 0.89 percent, at 2,082.84 and the Nasdaq Composite <.IXIC> was down 51.19 points, or 1.01 percent, at 5,029.31.

The financials <.SPSY> weighed down the S&P 500 with a 1.4 percent decline. JPMorgan Chase , down 2 percent, was the biggest drag on the financial index.

Seres Therapeutics' shares fell 18.8 percent to $41.80 after an 86 percent rise in its market debut on Friday, making it the biggest loser on the Nasdaq.

Ameriana Bancorp shares rose 37.7 percent at $21.45 after First Merchants and Ameriana agreed to merge in a $68.8 million deal. The stock was the biggest percentage gainer on the Nasdaq.

Assured Guaranty and MBIA Inc fell more than 10 percent after BTIG downgraded the insurers on concerns over Puerto Rico's debts.

Vitae Pharmaceuticals shares fall 17 percent to $12.56 after company said its drug to treat type 2 diabetes in overweight patients did not meet its main goal in a mid-stage study testing it as an add-on therapy.

Declining issues outnumbered advancers on the NYSE by 2,411 to 524. On the Nasdaq, 2,006 issues fell and 590 advanced.

The S&P 500 index showed two new 52-week highs and 19 new lows, while the Nasdaq recorded 34 new highs and 67 new lows.

(Additional reporting by Ryan Vlastelica in New York and Siddharth Cavale in Bengaluru; Editing by Saumyadeb Chakrabarty)

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