US STOCKS-Wall St slides to 12-year low as confidence sinks

                                
 * Dow, S&P post lowest closes since spring 1997
                                
 * US looks at big Citi stake, says favors private banking
                                
 * Techs sector leads market lower on spending fears
                                
 * Dow off 3.4 pct; S&P 500 off 3.5 pct, Nasdaq off 3.7 pct
                                
 * For up-to-the-minute market news, click [STXNEWS/US]
 (Adds context to Dow, JP Morgan dividend)
                                
 By Chuck Mikolajczak
                                
 NEW YORK, Feb 23 (Reuters) - Wall Street slumped to a
12-year low on Monday as investors lost faith that the U.S.
government will be able to stabilize the financial system.
                                
 The S&P 500 and the Dow both posted their lowest closes
since the spring of 1997 as reports the government may convert
its stake in Citigroup <C.N> into a big common stock holding
fell short of what many see as necessary to fix big banks.  For
full story see [ID:nN23336737].
                                
 "It is generally a market 'no' vote to what we're getting
from Washington," said Hank Smith, chief investment officer at
Haverford Trust Co in Philadelphia, of the reaction to the
Citigroup news.
                                
 "It certainly doesn't inspire confidence when you do break
multi-year lows, so it's just feeding into a real negative
cycle that we're in right now," he said.
                                
 Adding to the bleak picture, CNBC reported that insurer
American International Group <AIG.N> could be forced into
bankruptcy if new rescue talks with the government fail to
secure it more funding.
                                
 The Dow Jones industrial average <.DJI> tumbled 250.73
points, or 3.40 percent, to 7,114.94. The Standard & Poor's 500
Index <.SPX> dropped 26.71 points, or 3.47 percent, to 743.34.
The Nasdaq Composite Index <.IXIC> skidded 53.51 points, or
3.71 percent, to 1,387.72.
                                
 In addition, worries about a decline in business and
consumer spending on technology hurt the biggest names in the
tech sector. IBM <IBM.N> and Hewlett-Packard <HPQ.N> were the
two of the biggest drags on the Dow industrials, with IBM
shedding 5.0 percent to $84.37 and Hewlett-Packard sliding 6.3
percent to $29.28 a share.
                                
 The market capitalization of the Dow fell $77.1 billion on
Monday. The index is down nearly 50 percent from its record
high close in October 2007, with about $10 trillion of value in
wiped out since then.
                                
 So far this year, the Dow has fallen 18.9 percent while the
S&P 500 has shed 17.7 percent and the Nasdaq has dropped 12
percent.
                                
 The blue-chip index is down nearly 50 percent from its
record close in October 2007.
                                
 Fears that some major U.S. banks could be nationalized
continued to drag on sentiment on Monday, as stocks briefly
came off lows after the White House reiterated that a privately
held banking system regulated by the government was still the
best way to operate.
                                
 As the only boosts to the Dow, Citigroup and Bank of
America <BAC.N> were up 9.7 percent and 3.2 percent,
respectively, after having fallen more than 35 percent each on
Friday.
                                
 Helping to fuel the tech slide was a Morgan Stanley
downgrade of its PC sales forecasts for 2009 and 2010, citing
lower prices and weaker-than-expected demand for PCs given the
rising sales of netbooks, which are cheaper, no-frills notebook
computers. [ID:nBNG290257]
                                
 Apple Inc <AAPL.O>, down nearly 5 percent to $86.95, was
the primary drag on Nasdaq.
                                
 After the closing bell, JP Morgan <JPM.N> announced it will
slash its quarterly dividend to 5 cents a share from 38 cents,
saying that will enable it to retain an additional $5 billion
in common equity per year. Shares rose 1 percent to $19.70 in
extended trade.
                                
 Dow component General Electric <GE.N>, whose businesses
include a big financing arm, also weighed on the blue-chip
index after Deutsche Bank cut its price target on GE by almost
a third and said the company's dividend may be vulnerable in
the second half of 2009. [ID:nWNAB5446]. GE fell 5.7 percent to
$8.85, after hitting a 13-year low of $8.78.
                                
 A decline of more than 13 percent in shares of U.S. Steel
Corp <X.N> contributed to a 6.2 percent slide in the S&P
materials index <.GSPM>.
                                
 Trading was active on the New York Stock Exchange, with
about 1.59 billion shares changing hands, above last year's
estimated daily average of 1.49 billion, while on Nasdaq, about
2.02 billion shares traded, below last year's daily average of
2.28 billion.
                                
 Declining stocks outnumbered advancing ones on the NYSE by
6 to 1 while decliners beat advancers on the Nasdaq by about 4
to 1.
 (Additional reporting by Leah Schnurr; Editing by Leslie
Adler)