* S&P 500 falls 5 percent over the past four sessions
* Energy, material shares plunge on uncertain growth outlook
* Tenet Health to buy Vanguard Health; Keynote to be bought
* Indexes off: Dow 1.3 pct, S&P 1.6 pct, Nasdaq 1.5 pct
NEW YORK, June 24 (Reuters) - U.S. stocks dropped to a two-month low on Monday, extending a slide as investors worried about the impact on equities from the Federal Reserve's plan to exit its economic stimulus and a cash squeeze in China that could hurt its economy.
Major indexes dropped 1 percent, with all 10 S&P 500 sectors solidly lower and 94 percent of stocks traded on the New York Stock Exchange declining. Energy and material shares were the weakest on the day.
"The Fed sparked some to start exiting equities, but now that's snowballing as everyone exits. It appears most people are moving to cash," said Tom Donino, co-head of trading at First New York Securities in New York, who added that the market may continue to fall until the S&P hits 1,550.
The Fed last week said that if the economy improves, it would start to reduce a stimulus program widely credited with fueling the market's 10 percent rally year to date. The comments were the catalyst for a major market decline, with the S&P posting its worst week in two months last week. Yields on 10-year Treasuries jumped to more than 2.6 percent, the highest level since August 2011.
The S&P 500 has slumped 5 percent over the past four sessions and dropped below its 100-day moving average. Last week, it dropped decisively below its 50-day average, a sign that near-term momentum may be toward the downside.
The breaking of the 50-day "means that this dip is not a buying opportunity" as it no longer has a "strong upwardly trending support line," wrote Randy Frederick, managing director of active trading and derivatives for Charles Schwab in Austin, Texas.
The NYSE Arca gold bugs index lost 4.7 percent and the PHLX gold/silver sector index fell 4.8 percent.
The Dow Jones industrial average was down 190.07 points, or 1.28 percent, at 14,609.33. The Standard & Poor's 500 Index was down 26.11 points, or 1.64 percent, at 1,566.32. The Nasdaq Composite Index was down 50.90 points, or 1.52 percent, at 3,306.34.
Deeper losses on the Dow were prevented by Microsoft Corp , which rose 1.1 percent to $33.62.
Markets in Shanghai and Hong Kong suffered heavy losses after the People's Bank of China said banks needed to do a better job of managing their cash and lending as the central bank attempts to move the world's second largest economy away from credit-driven investment.
The news sparked concerns that the region's economy could slow further. Shares in Shanghai plummeted 5.3 percent while Chinese financial shares tumbled.
The S&P 500 has fallen 4 percent in June, putting the benchmark index on track to end a seven-month rise as well as its worst monthly performance since May 2012. The index is down 6 percent from its all-time closing high on May 21, and with the day's decline it is now negative for the second quarter.
"Generally when you see declines this steep and severe, equities find a bottom and recover somewhat dramatically," said Donino. "I suspect that could happen soon."
Energy and material stocks, both tied to the pace of growth, were the weakest of the day. Cliffs Natural Resources sank 8.1 percent to $15.80 as one of the biggest decliner on the S&P. Consol Energy fell 6.7 percent to $27.79 and Peabody Energy lost 8.4 percent to $14.65.
U.S. hospital operator Tenet Healthcare Corp will buy smaller rival Vanguard Health Systems Inc for $4.3 billion or $21 per share including debt to expand into new locations. Vanguard shares jumped 69 percent to $20.93 and Tenet gained 1.9 percent to $42.65 as the S&P's top advancer.
Barrick Gold Corp will lay off up to a third of its corporate staff at its Toronto headquarters and other offices, sources said, as the world's top bullion producer downsizes more as the price of gold slumps. U.S.-listed shares fell 4.3 percent to $16.17.
Keynote Systems Inc said it had agreed to be acquired by an affiliate of private equity firm Thoma Bravo LLC for about $395 million, or $20 per share. Keynote surged 47 percent to $19.82.
STEC Inc jumped 87 percent to $6.72 after Western Digital Corp said it would buy the company for about $340 million in cash. Western Digital shares shed 3.3 percent to $58.21.