US STOCKS-Bank and economic fears drive Dow to 3-month low

(Updates to close)

* Market falls as bank stocks at 5-1/2-year low

* Dow slips below 12,000 for first time since March

* Weak economic outlook pummels transport stocks

* GM, Ford tumble on bleak brokerage outlook

By Walker Simon

NEW YORK, June 18 (Reuters) - The Dow industrials sank to their lowest close in three months on Wednesday after slipping below 12,000 for the first time since mid-March, as worries about a weak economy compounded credit sector concerns and drove shares of banks, autos and transportation companies sharply lower.

Triggering fears of a slowing economy, FedEx Corp (FDX.N), forecast dismal profits as rising fuel costs could sap demand. Shares of the package delivery company, closely watched by Wall Street as a proxy for U.S. business activity, fell 2.1 percent to $82.60 on the New York Stock Exchange.

Adding to the bleak outlook for bank stocks, Fifth Third Bancorp (FITB.O) sank 27 percent to $9.26 and ranked among the Nasdaq's biggest percentage losers. The Midwestern bank said it would cut its dividend and raise $2 billion in capital, stirring fears that the credit crisis was tightening its grip on commercial banks.

A 2 percent rise in oil prices above $136 a barrel compounded concerns about rising raw material costs.

The Dow fell to an intraday low at 11,993.64 -- its lowest level since the Federal Reserve's mid-March rescue of Bear Stearns rattled investors who were already worried about the health of the banking sector.

"The autos, financials and transport sectors are very sensitive to the perception that economic growth is waning," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "We've had little evidence the economy is at (its) bottom."

Worries were surfacing over the reading of the U.S. second-quarter gross domestic product, due in July, he said. A Reuters poll of economists see the GDP's growth rate slowing to an annual pace of 0.2 percent in the second quarter, which would be the weakest since 2002.

The Dow Jones industrial average .DJI tumbled 131.24 points, or 1.08 percent, to 12,029.06 -- its lowest close since March 17.

The Standard & Poor's 500 Index .SPX fell 13.09 points, or 0.97 percent, to 1,337.81. The Nasdaq Composite Index .IXIC dropped 28.02 points, or 1.14 percent, to 2,429.71.

Shares of General Motors Corp (GM.N) fell 5.9 percent to $14.89, ranking as the Dow's biggest percentage loser. GM touched $14.75, its lowest level since the recession of 1982.