Banks sink on European economic worry

NEW YORK (Reuters) - Banks led stocks lower on Wednesday as the S&P 500 stalled near a 10-month-high after signs of weak European business activity rekindled concerns about a recession overseas.

U.S. banks were the S&P 500's worst performing sector. Investors feared that weak euro zone growth would hamper countries dealing with heavy debt loads and the banks exposed to those debts.

"We're very concerned around the markedly deteriorating credit fundamentals in Europe," said Steven Baffico, chief executive officer at Four Wood Capital Partners in New York.

Data showing weakness in the euro zone services and manufacturing sectors overshadowed the day-old deal to bail out Greece.

After touching a near 7-month high on Tuesday, the KBW bank index .BKX fell 2 percent. A key European bank index .SX7P declined 2.5 percent.

The S&P 500 index failed again to hold above 1,360, the high reached last May and a key resistance point that could spark further gains if broken. The benchmark index is up about 8 percent for the year and gained more than 20 percent from its October lows.

The Dow Jones industrial average .DJI lost 27.02 points, or 0.21 percent, to 12,938.67. The S&P 500 Index .SPX dropped 4.55 points, or 0.33 percent, to 1,357.66. The Nasdaq Composite .IXIC fell 15.40 points, or 0.52 percent, to 2,933.17.

Oil services companies rose, partly offsetting the decline by banks. Drilling contractor Nabors Industries (NBR.N) rose 7 percent to $21.78 a day after its operating results topped Wall Street expectations and as the chief executive detailed a retooling of the company.

The PHLX oil services sector index .OSX rose 1.7 percent.

Home builder stocks fell, with the PHLX housing sector index .HGX down 1.4 percent. Data showed U.S. home resales surged to a 1-1/2 year high in January but came in below forecasts.

Dell Inc (DELL.O) was one of the biggest drags on the S&P, tumbling 5.8 percent to $17.10 in volume 2.5 times above its recent daily average. The world's No. 3 personal computer maker forecast revenue below expectations late Tuesday. The NYSEArca computer hardware index .HWI lost 1.8 percent.

After the market's close, shares of computer maker Hewlett-Packard (HPQ.N) fell 1.4 percent after reporting quarterly revenue below expectations.

About 6.3 billion shares changed hands on the New York Stock Exchange, the Nasdaq and Amex, compared with last year's daily average of about 7.8 billion shares.

Slightly more than three shares fell for every two that rose on the NYSE, while on the Nasdaq more than two fell for every advancing issue.

According to Thomson Reuters data through Wednesday morning, of the 424 companies in the S&P 500 that have reported earnings, 64 percent have topped analysts' expectations, which is below the 70 percent beat rate for the past four quarters but above the median of 62 percent since 1994.

(Reporting by Rodrigo Campos and Angela Moon; Editing by Kenneth Barry)