NEW YORK - UNITED States stocks tumbled on Monday as fear of more credit and housing market turmoil battered financial shares and a mixed bag of quarterly results added to uncertainty the outlook for corporate profits.

Oil prices rose more than 1 per cent on supply concerns, further unnerving investors and renewing some worries about inflation and consumer spending.

But it was news that federal regulators seized two more failed US banks late last week that triggered Monday's sharp sell-off in financial shares and sent major indexes down more than 2 per cent.

Lehman Brothers Holdings, the fourth-largest US investment bank, stumbled after a Merrill analyst said the firm may post a third-quarter loss and face a round of fresh write-downs on its residential mortgage portfolio.

The S&P financial index shed 4.6 per cent. The sell-off came after a rally last week that lifted many banks' shares 40 per cent or more.

'It's all about financials right now. We saw a couple of small banks go 'belly up' over the weekend. Now people are wondering what's going to happen next and when,' said Mr Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.

The Dow Jones industrial average sank 239.61 points, or 2.11 per cent, to 11,131.08.

The Standard & Poor's 500 Index shed 23.39 points, or 1.86 per cent, to 1,234.37.

The Nasdaq Composite Index lost 46.31 points, or 2.00 per cent, to 2,264.22.

Two weeks after the Federal Deposit Insurance Corp seized IndyMac Bancorp, the Office of the Comptroller of the Currency said late on Friday it closed First National Bank of Nevada and First Heritage Bank NA of California.

'This is a reality check,' said Mr Jim Awad, chairman of W.P. Stewart Asset Management in New York. 'There are going to be other shoes that drop.'-- REUTERS

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