Wall Street drops as banks, Europe weigh

NEW YORK (Reuters) - Stocks dropped on Thursday on concerns about global banks, a surprise Supreme Court ruling upholding a landmark healthcare law, and pessimism about the ability of a European summit to ease the region's debt crisis.

As EU leaders began the two-day summit, finance officials were working on urgent measures to diminish financial market pressure on Spain and Italy, which may be more difficult to bail out than smaller nations in the euro zone.

Recent statements from German Chancellor Angela Merkel have been at odds those of other European leaders on how to deal with the crisis.

"Angela Merkel was very adamant about the fact she isn't going to give an inch or two - the markets at this point may be looking at the statement (at the conclusion of the summit) to see if the actions match her rhetoric," said Fred Dickson, chief market strategist, D.A. Davidson & Co. Lake Oswego, Oregon.

Wall Street losses accelerated after a divided U.S. Supreme Court backed the centerpiece of President Barack Obama's signature healthcare overhaul law that requires that most Americans to get insurance by 2014 or face a penalty. The decision surprised many investors who see the law as a hallmark of a business unfriendly administration.

"The proof in the pudding will come out over the next three or four days because the Supreme Court ruling, being ninety pages long, probably will require some in depth interpretation," said Dickson.

The Dow Jones industrial average <.DJI> fell 167.26 points, or 1.32 percent, to 12,459.75. The Standard & Poor's 500 Index <.SPX> lost 17.83 points, or 1.34 percent, to 1,314.02. The Nasdaq Composite Index <.IXIC> dropped 55.57 points, or 1.93 percent, to 2,819.75.

The Morgan Stanley healthcare payor index <.HMO> added 0.6 percent, oscillating between gains and losses in the wake of the ruling. Larger insurers such as Aetna Inc , which face more regulation, lost ground while those reliant on Medicaid such as Wellcare Health Plans Inc rose as their rolls are expected to increase.

Aetna lost 3 percent to $39.74 and Wellcare jumped 8.1 percent to $53.65.

Shares of JPMorgan Chase & Co dropped 5 percent to $34.96 after a New York Times report projecting that losses from a recent botched trade could reach $9 billion, more than four times the original estimate.

U.S.-traded shares of Barclays slumped 14 percent to $10.60 after Britain said it had brought in the fraud squad to investigate possible crimes over attempts to manipulate lending rates, a scandal that is expected to spread to other banks. Lloyds fell 5.2 percent to $1.84 in New York.

Further weighing on the financial sector, Citi Investment Research posted a bearish note on several U.S. banks including Bank of America Corp and Goldman Sachs as the slow economic recovery hurts trading.

Bank of America shares fell 2.6 percent to $7.57, while Goldman Sachs lost 1.2 percent to $92.18. The KBW bank index lost 2.2 percent.

(Reporting by Chuck Mikolajczak, editing by Dave Zimmerman)

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