* Bank nationalization fear grips market
* Bank of America, Citigroup lead financial sell-off
* Dow and S&P 500 down 1 pct; Nasdaq off 0.4 pct
* For up-to-the-minute market news, click [STXNEWS/US] (Updates to early morning)
By Ellis Mnyandu
NEW YORK, Feb 20 U.S. stocks tumbled on Friday, depressing the Dow to levels last seen more than six years ago as investors worried a financial sector rescue might involve nationalization of major banks, wiping out shareholders.
The mounting fear sent investors scurrying to the relative safety of U.S. government bonds US10YT=RR and gold XAU=, which rose above $1,000 an ounce.
Shares of Bank of America (BAC.N) tumbled more than 15 percent to $3.35, while Citigroup (C.N) slid more than 18 percent to $2.06. For a moment after the market open, Citi traded below $2, contributing to a 4.8 percent drop in the KBW Banks index .BKX.
"There's a lack of confidence in the government to get us out of this and that has people sitting on their hands and not willing to buy," said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey. "There's that fear that we nationalize banks and this market gets killed."
The Dow Jones industrial average .DJI fell 87.53 points, or 1.17 percent, to 7,378.42. The Standard & Poor's 500 Index .SPX declined 8.59 points, or 1.10 percent, to 770.35. The Nasdaq Composite Index .IXIC lost 4.98 points, or 0.35 percent, to 1,437.84.
After the Dow broke its November lows on Thursday to hit fresh bear market lows, investors are worried that its breach suggests the benchmark S&P 500 .SPX may not be far from violating three-month lows as the gloom persists, and a retest of levels not seen since 1997 may be looming. (Editing by James Dalgleish)