JPMorgan Chase & Co, the second largest U.S. bank by assets, led a broader decline in bank share prices, as investors feared lenders face a growing list of lawsuits due to problem mortgages.

Late on Friday, the Federal Housing Finance Agency sued 17 large U.S. banks over $200 billion in subprime mortgage-backed bonds, now owned by Fannie Mae and Freddie Mac.

JPMorgan shares declined 3.7 percent at $33.34 in midday trading, outpacing a 3.4 percent decline in Bank of America and a 2.9 percent fall for Citigroup Inc shares. JPMorgan's share price drop also exceeded the 1.8 percent decline in the KBW Bank Index and the broader S&P 500 Index.

Analysts said investors are becoming concerned the industry faces a long slog of litigation due to now-toxic mortgages. The suit by Fannie Mae and Freddie Mac's regulator, they said, is just the latest addition to those worries.

When you have a regulator suing on behalf of the parties it regulates, that's bad news, said Jefferson Harralson, a bank analyst with Keefe, Bruyette & Woods Inc.

In August, investors pounded the shares of Bank of America Corp, the largest U.S. bank, on fears it would need to raise as much as $50 billion in capital to absorb mortgage losses and fight related litigation.

Bank of America shares dropped were at $7.05 at midday, but the shares declined as low as $6.80, below the stock's closing price of $6.99 before billionaire investor Warren Buffett agreed to purchase $5 billion in preferred stock. The deal, announced on August 25, sent Bank of America shares up by as much as 26 percent.

Also on Tuesday, Nomura cut its price targets for U.S. bank stocks, citing a weak economic recovery, low interest rates, rising litigation costs and a slowdown in capital markets activity.

(Reporting by Joe Rauch; editing by Andre Grenon)

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