US STOCKS-Fears on Citi, earnings season weigh on Wall St

                                
 * Citigroup drops on fears of big operating loss
                                
 * Alcoa falls on downgrade ahead of earnings
                                
 * Dow down 1.5 pct; S&P 500, Nasdaq off over 2 pct
                                
 * For up-to-the-minute market news, click [STXNEWS/US]
 (Updates Alcoa, JP Morgan, adds context to Dow)
                                
 By Chuck Mikolajczak
                                
 NEW YORK, Jan 12 (Reuters) - U.S. stocks fell on Monday as
concerns about massive credit losses at Citigroup knocked its
shares 17 percent lower, dragging down bank stocks, and on
fears of a dismal fourth-quarter earnings season.
                                
 A Wall Street Journal report that Citigroup could report
more than $10 billion in fourth-quarter operating losses struck
a blow to other banks on fears of a fresh round of losses from
the credit crisis.
                                
 The S&P Financial index <.GSPF> fell 5.7 percent.
                                
 Alcoa Inc <AA.N> kicked off the earnings season after the
bell with a wider-than-expected loss of 28 cents a share,
excluding items. For details, see [ID:nN12355902]. Ahead of the
results, its shares closed down nearly 7 percent after Deutsche
Bank recommended investors sell the stock, and slipped another
1.1 percent to $9.95 in after-hours trade.
                                
 "Profits drive the stock market, and we want to see if
anybody's got any," said Frank Lesh, futures analyst and broker
at FuturePath Trading LLC in Chicago. "There is caution going
into earnings season, and we'll probably have a few more weeks
of it."
                                
 Fourth-quarter S&P 500 earnings are expected to decline
15.1 percent from a year earlier, marking the sixth straight
quarterly fall, according to Thomson Reuters estimates.
                                
 The Dow Jones industrial average <.DJI> fell 125.21 points,
or 1.46 percent, to 8,473.97. The Standard & Poor's 500 Index
<.SPX> dropped 20.09 points, or 2.26 percent, to 870.26. The
Nasdaq Composite Index <.IXIC> lost 32.80 points, or 2.09
percent, to 1,538.79.
                                
 The slide increased the indexes' losses since the start of
2009. Even so, the benchmark S&P 500 index is 15.7 percent
above its November low.
                                
 The Dow has fallen for four consecutive sessions but
remains up 12.2 percent from its closing low on Nov. 20.
                                
 Year-to-date, the S&P is down 3.7 percent, the Dow has
fallen 3.4 percent and the Nasdaq has slipped 2.4 percent.
                                
 Adding to concerns on Citigroup was news that the embattled
U.S. bank is nearing a deal to sell a controlling stake in its
Smith Barney retail brokerage business to Morgan Stanley
<MS.N>. [ID:nLC142461]. Investors fear that Citigroup is
looking to sell one of its best assets because it needs cash.
                                
 Financial stocks were among the worst performers on the
Dow, as Bank of America <BAC.N> tumbled 12 percent, JPMorgan
fell 4.1 percent, and Citigroup slumped to $5.60, near the
stock's level before the bank was bailed out by the U.S.
government last year.
                                
 After the closing bell, JPMorgan announced that it had
moved its fourth-quarter earnings release date up to Jan. 15
from Jan. 21, sending shares up 1.6 percent to $25.30 in
extended trade.[ID:nN12357579]
                                
 It was the fourth straight day of declines for the S&P
Financial index and the longest losing streak since the
November bailout of Citi.
                                
 Investors also sold off shares of energy companies
including Chevron <CVX.N> on concerns oil demand will be hurt
by the economic slump. U.S. crude oil futures ended down nearly
8 percent.
                                
 Chevron fell 2.8 percent to $70.82 while Exxon Mobil
<XOM.N> shed 1.3 percent to $76.54. The S&P Energy index
<.GSPE> slid 3.1 percent.
                                
 Caterpillar <CAT.N>, a maker of excavators and bulldozers,
was the top weight on the Dow with a tumble of 4.7 percent to
$41.19.
                                
 On Nasdaq, Apple Inc <AAPL.O>  was the primary drag, 2.1
percent to $88.66.
                                
 However, there were bright spots due to merger activity.
Shares of Advanced Medical Optics <EYE.N> surged 143 percent to
$21.50 after the company agreed to be bought by Abbott Labs
<ABT.N> for nearly $1.4 billion. [ID:nN12317055]. Abbott shares
lost 2.2 percent to $50.06.
                                
 In response to the faltering economy, President-elect
Barack Obama asked President George W. Bush to seek from
Congress the remaining $350 billion of the $700 billion
financial industry bailout, and he agreed to do so, the White
House said.
                                
 Obama, who will be sworn in on Jan. 20, has vowed to
restructure Washington's financial rescue plan to stem mortgage
loan foreclosures.
                                
 Volume was light on the New York Stock Exchange, where
about 1.31 billion shares changed hands, below last year's
estimated daily average of 1.49 billion. On the Nasdaq, about
1.81 billion shares traded, also below last year's daily
average of 2.28 billion.
                                
 Decliners outnumbered advancers on both the New York Stock
Exchange and Nasdaq by a ratio of about three to two.
 (Editing by Leslie Adler)