* Banks, natural resources shares lead declines
* JPMorgan shares down, executive departs after huge loss
* S&P 500 breaks support at 1,340
* Dow off 1 pct, S&P off 1.1 pct, Nasdaq off 1.1 pct
By Chuck Mikolajczak
NEW YORK, May 14 (Reuters) - U.S. stocks fell on Monday as
investors dealt with the one-two punch of worsening political
upheaval in the euro zone and the possibility that China's
economy may be softening more than previously thought.
The S&P 500 finished lower for the fourth day of five to
close at its lowest level since February, adding fuel to worries
of a coming market correction.
Economically sensitive shares, including banks and energy
companies, paced the decline. Exxon Mobil Corp lost 1.2
percent to $82.12. The NYSEArca oil index fell 1.8
percent.
State television in Greece reported the president of the
fiscally beleaguered country will continue talks on forming a
coalition government, although Socialist leader Evangelos
Venizelos said on Monday he was not optimistic that a government
could be formed.
"People are starting to lose patience - you saw what
happened in Greece and some of the other regions around Europe,
in terms of voters getting frustrated," said Ken Polcari,
managing director at ICAP Equities in New York.
"Now we are in that in-between stage - 1,325 on the downside
and 1,350 representing resistance - so we are stuck right
there."
Banks were pressured by JPMorgan Chase & Co, which
announced the exit of a top executive after suffering trading
losses that could reach $3 billion or more. JPMorgan shares fell
3.2 percent to $35.79 after losing 9 percent on Friday. The KBW
Bank Index dropped 2.6 percent.
Adding to the swirling political winds in Europe, German
Chancellor Angela Merkel's Christian Democrats suffered a
crushing defeat on Sunday, which could encourage the opposition
to increase attacks on her austerity policies. Merkel said on
Monday the defeat was a bitter setback, but would not alter her
view on how to achieve growth.
Concerns about the depth of a slowdown in China have been
troubling investors for several months. China's decision on
Saturday to cut the amount of cash banks must hold as reserves,
normally seen as a pro-growth move, suggested the country may be
facing more significant hurdles.
The three major U.S. stock indexes pared losses after the
European markets closed before selling reaccelerated near the
end of trading, pushing the S&P 500 below an important support
level at 1,340, which could trigger further selling.
The Dow Jones industrial average dropped 125.25
points, or 0.98 percent, to close at 12,695.35. The Standard &
Poor's 500 Index lost 15.04 points, or 1.11 percent, to
1,338.35. The Nasdaq Composite Index fell 31.24 points,
or 1.06 percent, to 2,902.58.
Groupon Inc closed up 18.5 percent at $11.74 after
surging more than 20 percent during the session in a
short-covering rally as traders scrambled to close bearish bets
ahead of the daily deal company's first-quarter results.
After the closing bell, Groupon's stock shot up 13.5 percent
to $13.33 after the company posted its first quarterly
profit.
Safe-haven currencies, including the dollar and the Japanese
yen, rose, with the euro hitting a four-month low against the
dollar. Oil fell sharply, with Brent crude falling to
its lowest level in 3-1/2 months.
In merger news, Avon Products Inc said on Sunday it
told Coty Inc that it would consider the smaller
company's $10.7 billion takeover bid and it expected to respond
within a week. Avon shares rose 3.8 percent to close at $20.96.
Yahoo Inc is replacing its CEO for the third time
in as many years, and giving three board seats to a hedge fund
led by Daniel Loeb, putting him in a strong position to
influence strategy at the struggling Internet company. The stock
advanced 2 percent to $15.50.
Volume was modest, with about 6.6 billion shares traded on
the New York Stock Exchange, NYSE Amex and Nasdaq, slightly
below the daily average of 6.78 billion.
Declining stocks outnumbered advancing ones on the NYSE by a
ratio of 2,557 to 472, while on the Nasdaq, 1,921 stocks fell
against 614 that rose.