U.S. STOCKS - Market sinks on Citi forecast, oil's drop

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. stocks dropped more than 1 percent on Tuesday as concerns about further losses at Citigroup weighed on the financial sector and a sharp pullback in oil prices dragged down energy shares.

A Merrill Lynch analyst forecast wider losses at Citigroup Inc, the largest U.S. bank, and its stock dropped 6.2 percent to $21.66. In addition, the Dubai investment agency said Citigroup may need more capital from outside investors.

In a speech in Florida, Federal Reserve Chairman Ben Bernanke warned that mortgage delinquencies and foreclosures were likely to rise and that more declines in house prices could be expected, saying the "situation calls for a vigorous response."

Crude oil prices dropped back below the key $100-a-barrel level after hitting a series of record highs recently.

"The news on Citi is more of the same. Investors are concerned about the width and depth of the problems in subprime and real estate. It has not gone away, and every couple of days, it rears its ugly head," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale Illinois.

The Dow Jones industrial average was down 146.78 points, or 1.19 percent, at 12,112.12. The Standard & Poor's 500 Index was down 15.89 points, or 1.19 percent, at 1,315.45. The Nasdaq Composite Index was down 25.23 points, or 1.12 percent, at 2,233.37.

In the tech world, Intel Corp, the world's largest chip maker, said late Monday that weaker prices for some of its memory chips could hurt profits and lowered its current-quarter gross margin forecast, increasing worries about business spending.

Intel was down 1.5 percent at $19.70.