Wall Street hit by worries about autos and banks

NEW YORK (Reuters) - Stocks dropped on Monday as the Obama administration's talk of takeover and bankruptcy for two major U.S. automakers, and bank rescues in Europe prompted investors to book profits after the recent run-up from 12-year lows.

In the latest efforts in its campaign to shore up the economy and struggling corporations, the administration forced out General Motors Corp's CEO, pushed Chrysler LLC toward a merger and threatened bankruptcy for both. GM shares tumbled 20.7 percent to $2.87.

Spain, Germany and Britain acted to bolster lenders as the sector felt the impact of rising bad loans, while Treasury Secretary Timothy Geithner said over the weekend, some banks still need large amounts of help.

"We've had a straight move higher and it just doesn't coincide with all the issues that are still out there," said Bill Strazullo, partner and chief investment strategist at Bell Curve Trading in Boston.

"We still have a lot of problems in a lot of different areas and the auto industry is one of them."

Before today's sell-off, stocks had rallied around 20 percent after hitting fresh 12-year lows in early March.

The Dow Jones industrial average slumped 274.71 points, or 3.53 percent, to 7,501.47. The Standard & Poor's 500 Index fell 29.60 points, or 3.63 percent, to 786.34. The Nasdaq Composite Index tumbled 51.24 points, or 3.32 percent, to 1,493.96.

GM CEO Rick Wagoner, who presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steven Rattner. A majority of GM's board will also be replaced.

In a press conference, U.S. President Barack Obama said Wagoner's departure reflected that the company needs a new direction and said the government did not want to run GM.

Investors worried that a potential bankruptcy would have ripple effects through the entire economy. Shares of auto-part suppliers fell, including American Axle & Manufacturing , which sank almost 20 percent to $1.41.

Spain was forced to rescue its first bank since the financial crisis began and Germany and Britain also moved to prop up lenders, sending European markets down.

Geithner said on Sunday the government will have about $135 billion left after other banks give back some of the bailout money, but did not say whether he will ask Congress for more.

Citigroup slid 9.2 percent to $2.38 and Bank of America dropped 14.7 percent to $6.26. The KBW Bank index shed 7.1 percent.

"The financials still have major, major issues," added Strazullo. "There are a lot of problems there that aren't going to go away any time soon. These banks are going to continue to require assistance from the government."

On the merger front, U.S. fertilizer producer CF Industries Holdings Inc said its board of directors rejected Canadian fertilizer company Agrium Inc's revised takeover offer of about $3.8 billion.

CF Industries fell 4 percent to $70.33 while Agrium's U.S.-listed stock declined 8 percent to $35.27, both in NYSE trading.

(Editing by Jan Paschal)