* Oil surges as Libya clashes intensify
* Banks slide after Merrill downgrades Goldman, Citigroup
* Indexes off: Dow 1.3 pct, S&P 1.2, Nasdaq 1 pct
* For up-to-the-minute market news see [STXNEWS/US] (Updates to late afternoon; changes byline)
By Angela Moon
NEW YORK, March 4 (Reuters) - Wall Street erased all of its weekly gains on Friday as fears of more geopolitical turmoil and the impact of high oil prices drove investors to sell risky assets like stocks.
Brent crude prices LCOc1 rose above $116 a barrel as Libyan security forces cracked down on protesters in Tripoli and clashed with rebels near the major oil terminal of Ras Lanuf.
Worries about extended supply disruptions and the potential for unrest to spread to other producers kept the stock market's anxiety high. The CBOE Volatility Index VIX .VIX, Wall Street's so-called fear gauge, rose 8 percent to 20.09.
Data earlier in the week had raised expectations about Friday's employment report, lifting stocks to their biggest gains in three months on Thursday. But after the report showed February job gains roughly in line with expectations, investors quickly turned their focus to rising oil prices and political unrest in northern Africa and the Middle East.
"After the kind of rally we had, the market is more vulnerable to news events, and more so these days on a spike in oil prices," said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research in Cincinnati, Ohio.
"But despite the day's decline, the market is still slightly more bullish than bearish. Unless we get some significant news like (the unrest) spilling over to Saudi, the market is likely to have up and down days mixed."
In brokerage news, first-quarter earnings of large U.S. banks could be hurt by rising oil prices as well as by reduced client activity, Bank of America Merrill Lynch said.
Goldman fell 2.3 percent to $160.68 and Citi dropped 3 percent to $4.54. The KBW bank index .BKX lost 2.1 percent.
The Dow Jones industrial average .DJI was down 155.19 points, or 1.27 percent, at 12,103.01. The Standard & Poor's 500 Index .SPX was down 16.33 points, or 1.23 percent, at 1,314.64. The Nasdaq Composite Index .IXIC was down 26.78 points, or 0.96 percent, at 2,771.96.
About 5.53 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq so far in the session.
The Labor Department said payrolls rose by 192,000 in February, slightly above the 185,000 gain expected by a Reuters poll, and the unemployment rate unexpectedly dipped to 8.9 percent from 9 percent. [ID:nOAT004757]. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SNAP ANALYSIS: U.S. jobs data showing some consistency [ID:nN04292473] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Among consumer-related shares, the homebuilding sector was hurt the most. The PHLX housing index .HGX fell 1.9 percent with Weyerhaeuser (WY.N) down 2.8 percent to $23.44 and KB Home (KBH.N), Ryland Group RYL.N and MDC Holdings (MDC.N) all down about 3 percent. (Reporting by Angela Moon, Editing by Kenneth Barry)