US STOCKS-Market drops on credit turmoil, recession fears

(Updates to midday, changes byline)

By Ellis Mnyandu

NEW YORK, March 10 (Reuters) - U.S. stocks fell on Monday, taking the broader market close to its 2008 lows, as investors sold off financial shares on fears of more credit losses, while concerns that the United States may already be in recession hit shares of big manufacturers.

The sell-off in financial stocks picked up speed amid rumors that a Wall Street firm was facing liquidity concerns, according to traders.

"There are rumors going around on Bear Stearns and (its) CDO debt, and that's taking the whole thing down," said Todd Leone, head of listed trading at Cowen & Co. in New York. "It's dragging down financials and the whole market. We also have oil up $1.70 and that doesn't help."

Bear Stearns BSC.N tumbled more than 13 percent to $60.34 but the stock pared losses slightly after Ace Greenberg, chairman of the executive committee of Bear Stearns, said liquidity rumors were "totally ridiculous."

Even so, financials remained among the top drags, with shares of Bank of America Corp (BAC.N: Quote, Profile, Research), the No 2 U.S. bank, down 3.4 percent at $35.51 on the New York Stock Exchange. Shares of Citigroup Inc (C.N: Quote, Profile, Research), the largest U.S. bank by assets, slid 4.2 percent to $20.04.

The Dow Jones industrial average .DJI fell 44.20 points, or 0.37 percent, to 11,849.49. The Standard & Poor's 500 Index .SPX shed 8.33 points, or 0.64 percent, to 1,285.04. The Nasdaq Composite Index .IXIC slid 18.38 points, or 0.83 percent, to 2,194.11.

Morgan Stanley cut its price targets on Bank of America and Citigroup and said it was "cautious" on big banks.