March 18, 2013 / 6:40 PM / 4 years ago

RPT-US STOCKS-Wall St cuts losses stirred by Cyprus bailout plan

* Cyprus delays vote on controversial tax on bank accounts

* VIX volatility index jumps but still low

* Dow flat, S&P 500 off 0.2 pct, Nasdaq flat

By Rodrigo Campos

NEW YORK, March 18 (Reuters) - U.S. stocks recovered much of their losses on Monday, set off by a plan to tax bank accounts in Cyprus to help pay for the country's bailout. The plan rekindled fears of an escalation in the euro zone crisis.

The Dow fell more than 100 points in the morning, with banks the biggest decliners. European bank stocks were hit even harder. An index of bank shares across Europe fell 1.5 percent.

The weekend announcement out of Cyprus came after the S&P 500 ended its 10th positive week in the last 11, and investors on Wall Street took the chance to cash in some of the recent gains. Including Monday's modest decline, the S&P 500 is on track to post its best quarter in a year.

Cypriot ministers were trying to revise a plan to seize money from bank deposits before a parliamentary vote on Tuesday that will secure the island's financial rescue or could lead to its default.

European officials have said the measure is a one-off for a country that accounts for just 0.2 percent of European output. The fear is that savers in larger European countries become nervous and start withdrawing funds, although there was no immediate sign of that on Monday.

"The issue ultimately for investors is: 'Is this going to cause contagion?'," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said European officials "have got to make clear this is Cyprus specific and contain the risk."

On Wall Street, the KBW bank index and the S&P financial sector index were each down 0.9 percent.

JPMorgan Chase fell 1.1 percent to $49.45 and ranked as one of the Dow's biggest percentage decliners.

The Dow Jones industrial average rose 3.68 points or 0.03 percent, to 14,517.79, the S&P 500 lost 2.57 points or 0.16 percent, to 1,558.13 and the Nasdaq Composite dropped 1.26 points or 0.04 percent, to 3,247.81.

The Dow fell to an intraday low of 14,404.21 while The S&P 500 hit an intraday low of 1,545.13 and the Nasdaq slid as low as 3,211.10.

The Dow is still up about 10.6 percent for the year and the S&P 500 is up about 9 percent so far in 2013.

"The market was slowing and getting a bit ahead of itself," Krosby said. "This is just part of that digestion and consolidation. You don't see any panic in the U.S. market."

The CBOE Volatility Index, or VIX, Wall Street's "fear gauge" rose 13 percent to a still low 12.77 level, indicating a lack of a shift in sentiment toward the stock market. U.S. Treasury debt prices rose, but yields were within last week's range.

Schlumberger shares fell 3 percent to $77.01 after the world's largest oilfield services company said fewer rigs than predicted were going back to work in its North American operations.

Shares of Dow component Boeing Co fell 1.4 percent to $85.20 and dragged on the Dow. To get its 787 Dreamliner flying again, Boeing is testing the plane's battery system to a standard that the company itself helped develop - but that it never used on the jet.

Boeing's European rival Airbus has signed an 18.4 billion-euro deal ($24 billion) with low-cost Indonesian carrier Lion Air for 234 single-aisle passenger planes, poaching one of Boeing's fastest-growing customers.

Shares of Charter Communications Inc rose as much as 10 percent in high volume after the Wall Street Journal said Liberty Media Corp is close to buying a 25 percent stake in the cable operator for about $2.5 billion.

Charter shares were last up 7.6 percent at $96.97 and Liberty fell 1.2 percent to $109.03.

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