US STOCKS-Wall St sinks as financial sector's woes increase

(Updates to midday, changes byline)

By Cal Mankowski

NEW YORK, March 6 (Reuters) - Financial shares drove U.S. stocks down sharply on Thursday after news of a default at a home lender and a report showing U.S. mortgage foreclosures reached a record high.

Shares of energy companies also weighed on the market as oil prices eased from record highs, with Exxon Mobil Corp (XOM.N: Quote, Profile, Research) down 2.1 percent.

Thornburg Mortgage Inc (TMA.N: Quote, Profile, Research), a "jumbo" mortgage lender, said it had received a letter from JPMorgan Chase notifying it of a default after it failed to meet a margin call of about $28 million. Its shares tumbled 56 percent.

The Mortgage Bankers Association said U.S. home foreclosures and the rate of homes entering foreclosure hit record highs in the fourth quarter of 2007.

Shares of hard-hit bond insurer Ambac Financial Group (ABK.N: Quote, Profile, Research) dropped almost 10 percent to $7.86. Ambac's slide followed news that banks have made a firm commitment to buy more than $500 million of its shares in a planned $1.5 billion offering -- if other investors don't buy them, according to a person briefed on the matter.

"The contagion and the risks in the financial sector continue to unfold," said Jim Awad, chairman of W.P. Stewart Asset Management in New York.

The Dow Jones industrial average .DJI was down 140.02 points, or 1.14 percent, at 12,114.97. The Standard & Poor's 500 Index .SPX was down 19.67 points, or 1.47 percent, at 1,314.03. The Nasdaq Composite Index .IXIC was down 26.18 points, or 1.15 percent, at 2,246.63.