NEW YORK (Reuters) - U.S. stocks fell in very light volume on Tuesday as investors seized on renewed concerns about European banks as a reason to sell shares after strong gains last week.
Banks, energy companies and chipmakers were the biggest decliners. Some analysts said the drop after Wall Street's best week in the past two months shows the market is likely to remain range-bound.
"It looks more like a consolidation than some type of conviction selloff," said Maier Tarlow, a New York Stock Exchange floor trader at Raven Securities. "We think that the market has got a bullish trend now, and unless we see repeated selloffs on better volume, we're going to keep that opinion."
Trading was among the lightest of the year, with 6.07 billion shares changing hands on the NYSE, Nasdaq and Amex combined. That contrasted with the 2009 average daily volume of 9.65 billion shares. Light volume tends to exaggerate market moves and can indicate a lack of conviction.
Worry about Europe's banks resurfaced after the Wall Street Journal reported major lenders understated holdings in potentially risky government debt during tests designed to probe banks' strength.
Although investors said the report contained little new information, it was enough to help spur profit-taking. Bank of America Corp (BAC.N) fell 2.1 percent and JP Morgan Chase & Co (JPM.N) lost 2.3 percent.
"There's concern about the health about the European banking sector," said Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus Capital Markets in Baltimore. "That fear kind of comes and goes."
The Dow Jones industrial average .DJI fell 107.24 points, or 1.03 percent, at 10,340.69. The Standard & Poor's 500 Index .SPX lost 12.67 points, or 1.15 percent, at 1,091.84. The Nasdaq Composite Index .IXIC shed 24.86 points, or 1.11 percent, at 2,208.89.
The decline ended a four-day rally for the S&P 500, although it was the magnitude of last week's move, not the duration, that was striking. The index jumped more than 5 percent over the last three days of the week on solid volume.
"We had a couple of days of nice buying on good volume which was an indication that institutions were stepping back in to buy stocks," said Tarlow.
Tuesday's losses followed the long Labor Day holiday weekend when most senior traders start returning to the office. Indexes had regained ground last week after stronger-than-expected U.S. payrolls and manufacturing data helped to quell fears of a double-dip recession.
The KBW Bank index .BKX lost 3.2 percent and the S&P financial index .GSPF fell 2.4 percent. Bank of America fell to $13.21 and JP Morgan Chase was down to $38.28.
Also weighing on banks, Germany's banking association said the country's 10 biggest banks may need 105 billion euros in new capital as regulators revamp rules designed to prevent future crises.
European bank shares traded on Wall Street also lost ground. Barclays Plc (BCS.N) U.S.-traded shares dropped 5.7 percent to $19.13, while Deutsche Bank AG (DB.N) ADRs were down 3.2 percent at $62.52, and UBS AG UBSN.VX(UBS.N) ADRs dipped 2.9 percent to $17.52.
Decliners outnumbered advancers by about three to one on the New York Stock Exchange.
Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston, said he expected markets to remain volatile and range-bound until after U.S. elections in November. Then markets could rally sharply, he said.
"I don't think it's necessarily a reversal that has a lot of upside from here," he said of last week's rally. Part of the move was "a reactionary bounce to the pretty dramatic selling we had in August," he said.
Zaro said he saw the S&P 500 hitting a ceiling at around 1,120 to 1,130, with a downside limit at around 1,000 before a late-year rally after the elections.
Among advancers, Oracle Corp ORCL.O jumped 5.9 percent to $24.26 after the world's third-largest software maker hired Mark Hurd, the former boss at Hewlett-Packard Co (HPQ.N), as president.
U.S. Steel Corp (X.N) attracted bullish option activity on renewed takeover speculation. Its shares rose 4.6 percent to $48.09, with one analyst citing ArcelorMittal (ISPA.AS) as a potential buyer. ArcelorMittal dropped 0.1 percent in New York to $31.52.
(Reporting by Edward Krudy; Additional reporting by Doris Frankel; Editing by Kenneth Barry)