Stocks fell on Monday on fears that possible fallout from the euro zone's sovereign debt troubles might force banks to raise capital, diluting the holdings of existing share owners.

Bank stocks fell broadly, weighed down by the sector's potential exposure to sovereign risk and lingering uncertainty about the regulatory environment.

Bank of America shares dropped 2.5 percent to $14.64, while JPMorgan slipped 0.4 percent to $38.15, and Citigroup shed 0.9 percent to $3.19. The S&P financial index <.GSPF> dropped 1.2 percent as the KBW bank index <.BKX> dipped 0.3 percent.

The European banks have been under pressure most of the day and I feel the American banks are following that, said David Lutz, managing director of trading at Stifel Nicolaus Capital Markets in Baltimore.

There are now some concerns not only about some of the regulatory issues that the banks might be under, but also about the increased possibility of capital raises from some of the banks. I think most of it is probably the sovereign issue.

The Dow Jones industrial average <.DJI> declined 29.62 points, or 0.30 percent, at 9,982.61. The Standard & Poor's 500 Index <.SPX> dropped 0.76 point, or 0.07 percent, at 1,065.43. The Nasdaq Composite Index <.IXIC> rose 1.62 points, or 0.08 percent, to 2,142.74.

Heightened concerns about the fiscal stability of Greece, Portugal and Spain have buffeted U.S. stock investors over the last two weeks, curbing the appetite for riskier assets and raising fears of possible contagion.

Wall Street has slid through critical levels, with the Dow now back below 10,000 and the benchmark S&P 500 now off more than 7 percent from its 15-month closing peak of January 19. The S&P 500 is still up 57 percent from its March 2009 bottom.

(Editing by Kenneth Barry)

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