Banks' shares fall on lending concerns

NEW YORK (Reuters) - Shares of big U.S. financial companies fell sharply on Wednesday as a spike in inter-bank lending rates fueled concerns about access to liquidity in the global financial system.

The bank-to-bank cost of borrowing overnight dollars fell more than a percentage point, but the premium paid for the greenback and sterling over three months swelled, showing persistent money market strain.

Goldman Sachs Group Inc (GS.N) and Morgan Stanley's (MS.N) shares fell between 10 percent and 17 percent and were among biggest losers as fears mounted about the ability of investment banks to have access to liquidity.

But the fall was broad and impacted retail banks Wachovia Corp WB.N, one of the lenders hardest hit by the U.S. housing crisis, and Citigroup Inc (C.N), the biggest U.S. bank by assets.

In addition, Washington Mutual (WM.N) stock fell sharply amid anxiety about the largest U.S. savings and loan company's capital needs and survival prospects.

"The weakness in financial stocks reflects ongoing credit stress concerns among investors ... banks remain nervous in terms of providing liquidity one to another," said Michael Sheldon, chief market strategist of RDM Financial Group.

"They (investors) are considering whether independent brokers firms would have enough access to liquidity in order to conduct business and be profitable on ongoing basis," Sheldon said.

Morgan Stanley shares sank 17 percent to $23.85, Goldman stock plummeted 10 percent to $119.90, Washington Mutual shares were down 9.75 percent at $2.13, Citigroup stock fell 9.14 percent to $14.32, and Wachovia shares retreated 15.29 percent to $9.75.

(Reporting by Juan Lagorio, editing by Maureen Bavdek)