US STOCKS-Dow, S&P 500 drop on financials, Nasdaq up

(Updates to early morning)

By Ellis Mnyandu

NEW YORK, Feb 8 (Reuters) - The Dow and the S&P 500 dropped on Friday as concerns about the outlook of bond insurers weighed on financial shares, but bargain hunting in the technology sector pulled the Nasdaq into positive territory.

Shares of JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) dropped 1.7 percent, and led the Dow's losers, while credit card and travel services company American Express Co (AXP.N: Quote, Profile, Research) slid 2 percent.

The drag from financial shares was driven in part by investor unease about the outlook for bond insurers after Moody's Investors Services cut its "AAA" ratings for bond insurer XL Capital Assurance, a unit of Security Capital Assurance SCA.N. For details, see [ID:nL08262331]

Comments from a Federal Reserve official saying a recession might not be avoidable were another headwind for stocks.

The Dow Jones industrial average .DJI was down 67.06 points, or 0.55 percent, at 12,179.94. The Standard & Poor's 500 Index .SPX was down 6.00 points, or 0.45 percent, at 1,330.91. The Nasdaq Composite Index .IXIC was up 3.59 points, or 0.16 percent, at 2,296.62.

Investors fear that downgrades of bond insurers could further harm the banking sector and stunt the global economy as financial institutions take a hit from subsequent write-downs of their assets.

JPMorgan shares fell to $44.23 on the New York Stock Exchange, while shares of American Express dropped to $45.55.