US STOCKS-Dow, S&P droop as credit worry hits financials

(Updates to midday)

NEW YORK, Feb 8 (Reuters) - The Dow and S&P 500 fell on Friday while the Nasdaq traded off its highs as investors sold financial shares amid another bout of worry about a possible fire sale of risky credit derivatives.

American Express Co (AXP.N: Quote, Profile, Research) shares led declines on the Dow, while Bank of America Corp (BAC.N: Quote, Profile, Research) was the biggest drag on the S&P. The S&P Financials were the worst performer of the 10 major industry groups, losing 2.27 percent.

In a sign of nervousness in the market, U.S. investment-grade credit derivative index widened to a record. Analysts said U.S. credit protection costs were surging on rumors that some structured credit vehicles with heavy losses are being liquidated.

Amid the uncertainty, investors will be more inclined to sell on a Friday, traders said.

"Going into any one of the weekends, the fear is that maybe another shoe is going to drop," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland, Ohio. "People are still fearful of what they are marking to market."

Nasdaq was holding above water, as investors bought up some of the biggest names in technology, which have been hammered recently on worries about recession.

Shares Google Inc (GOOG.O: Quote, Profile, Research), down nearly a third from its November high, were up 2.1 percent to $515.42. Apple Inc (AAPL.O: Quote, Profile, Research) stock, also down about a third from its high, was up 2.4 percent to $124.17.

The Dow Jones industrial average .DJI was down 67.55 points, or 0.55 percent, at 12,179.45. The Standard & Poor's 500 Index .SPX was down 6.07 points, or 0.45 percent, at 1,330.84. The Nasdaq Composite Index .IXIC was up 7.39 points, or 0.32 percent, at 2,300.42.

American Express shares were down 5 percent to $44.15 and Bank of America stock was down 2.8 percent to $42.17. (Additional reporting by Ellis Mnyandu; reporting by Jennifer Coogan; editing by Gary Crosse)