US STOCKS-Wall St drops on oil's surge, bank jitters

(Updates to late morning)

* Oil rebound stirs caution about inflation

* Financials hit 5-year low on Goldman rumors

* Beige Book eyed for economic conditions

* Alcoa hits the Dow following broker downgrade

By Ellis Mnyandu

NEW YORK, June 11 (Reuters) - U.S. stocks fell on Wednesday as rebounding oil prices fed fears about inflation and the squeeze on spending that businesses and consumers could feel from surging fuel costs.

Sentiment soured further on fears of more trouble in the financial sector. Traders said there was talk Goldman Sachs (GS.N: Quote, Profile, Research) , the largest U.S. investment bank by market value, may have to write off bad loans. A Goldman Sachs spokesman said the company does not comment on market rumors.

The S&P financial subindex .GSPF sunk briefly to a 5-year low, while Goldman shares slid nearly 2 percent.