* News Corp spinoff to replace Apollo Group in S&P 500
* Options "pinning" seen at the 1,600 level on the S&P
* Oracle slides after results miss
* Indexes down: Dow 0.2 pct, S&P 0.4 pct, Nasdaq 0.8 pct
NEW YORK, June 21 (Reuters) - U.S. stocks turned lower on Friday as the initial bounce from a two-day selloff faded and banking stocks fell, while a sharp drop in Oracle shares dragged down the Nasdaq.
Share prices have slumped since Wednesday, when Federal Reserve Chairman Ben Bernanke laid out the Fed's plans to pull back on its $85 billion in monthly asset purchases.
Large bank shares were hit hard as the Treasuries selloff continued, on fears of sharp writedowns linked to their bond holdings. Citigroup dropped 4 percent to $45.97 and Morgan Stanley lost 3.1 percent to $24.37.
The drop to seven-week lows in U.S. equities following a two-day selloff seemed to entice investors and equity futures traded sharply higher early in the session. But the enthusiasm failed to hold into morning trading and indexes set the day's highs early on.
"There is a supply of money waiting to step back in, but a big move down forces people to at least pause," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
"There was some money coming back overnight and this morning but when the market didn't come screaming back, people think maybe they should wait a little longer. It's the emotion that comes with a big selloff."
The S&P 500 is down nearly 6 percent from its historic high set last month, in the largest pullback since an 8.9 percent decline between September and November. The index rallied more than 25 percent from those November lows to set its record.
Oracle Corp dropped 8.2 percent to $30.50 a day after the tech giant missed expectations for software sales and subscriptions for a second straight quarter. Oracle was the biggest drag on both the S&P and Nasdaq Composite.
Volatility, which has spiked since May 22 when Bernanke first hinted that the Fed may begin to rein in its stimulus measures, is expected to continue. The CBOE Volatility Index , a gauge of anxiety on Wall Street, jumped 23 percent on Thursday to 20.49, the first time this year it closed above 20.
The Dow Jones industrial average fell 29.72 points or 0.2 percent, to 14,728.6, the S&P 500 lost 6.12 points or 0.39 percent, to 1,582.07 and the Nasdaq Composite dropped 27.26 points or 0.81 percent, to 3,337.38.
The S&P was down more than 2.5 percent for the week, which would make it the largest weekly drop for the index in a year.
Analysts pointed to the quarterly expiration and settlement of June equity options and futures contracts on Friday as another volatility trigger for the trading session.
Heavy action was seen on the 1,600 level for the S&P 500, increasing the chance for the index to be "pinned" at the level as traders unwind positions at expiration later in the day.
Pinning refers to the tactic used by dealers to push a stock price or index level towards the strike price of heavily traded options as expiration nears, thus allowing those options to expire worthless.
Both June call and put options on the S&P 500 are clustered around the 1,600 level, meaning market-makers could "pin" the index at that level by buying and selling the underlying asset.
"The underlying (S&P 500 index) has moved significantly prior to the Fed (meeting on Wednesday) and the biggest open interest is now on the 1,600 level," said JJ Kinahan, chief strategist at T.D Ameritrade in Chicago.
About $14 billion is expected to change hands in index rebalancing-related trading towards the session's close, according to Credit Suisse, which could compound volatility.
Facebook shares rose 1.3 percent to $24.22. UBS raised its rating on the stock to "buy" from "neutral."
S&P Dow Jones Indices said Thursday that News Corp's spinoff News Corp will replace Apollo Group in the S&P 500. The old News Corp, which is changing its name to 21st Century Fox, will remain in the S&P 500. The change is effective after the close of trading Friday, June 28. Apollo shares fell 2.9 percent to $19.16.
China's central bank faced down the country's cash-hungry banks on Friday, letting interest rates spike as it increased pressure on banks to curb rampant informal lending and speculative trading. Some worry that its approach could backfire, creating the potential for defaults and gridlock in the money markets of the world's second-largest economy.