US STOCKS-Dow, Nasdaq drop as oil, banks drag; S&P flat

                                
 (Updates to midday)
                                
 * Dow nears bear territory
                                
 * Record oil prices stir inflation, spending worry
                                
 * Fears of more credit losses jolt banks
                                
 By Ellis Mnyandu
                                
 NEW YORK, June 27 (Reuters) - The Dow and the Nasdaq fell
on Friday, as concerns about the impact of record oil prices
on the economy and fears of more credit losses in the bank
sector rattled investors, putting the Dow on the cusp of
entering a bear market for the first time since 2001.
                                
 Caution hit stock markets around the world, causing
European shares to gyrate between gains and losses
intermittently, while Tokyo ended down 2 percent and Hong Kong
slid 1.8 percent.
                                
 U.S. crude climbed to a record for a second straight day,
jumping as high as $142.26 a barrel and adding to concerns
about the toll of higher energy costs on consumers and the
outlook for earnings.
                                
 Rising crude prices aided energy shares, helping keep the
S&P 500 little changed. Exxon Mobil <XOM.N> was up 0.8 percent
at $87.14 and Chevron Corp <CVX.N> gained 1.2 percent to
$98.62.
                                
 Analysts gave more gloomy predictions about the outlook
for banks, which have been reeling from the credit crisis.
Lehman Brothers predicted rival Merrill Lynch <MER.N> would
write down another $5.4 billion in the second quarter and
slashed its price target for the stock. For details, see
[ID:nBNG192536].
                                
 Merrill shares dipped 0.1 percent to $33.02.
                                
 "Higher oil prices are continuing to be a drag on the
market. The question is how much are they weighing on
discretionary spending," said Edward Bretschger, director of
equity sales and trading at Calyon Securities, New York.
                                
 The Dow Jones industrial average <.DJI> fell 34.04 points,
or 0.30 percent, to 11,419.38. The Standard & Poor's 500 Index
<.SPX> rose 1.38 points, or 0.11 percent, to 1,284.50. The
Nasdaq Composite Index <.IXIC> declined 5.39 points, or 0.23
percent, to 2,315.98.
                                
  U.S. stocks look poised to record their largest monthly
losses in nearly five years with Monday marking June's final
session.
                                
 The diminishing appetite for riskier assets underpinned
government bonds due to their relative safety. [US/]
                                
 Bank analyst Richard Bove of Ladenburg Thalmann widened
his full-year loss forecast for Lehman Brothers <LEH.N> and
also cut his price target on the investment bank.
[ID:nBNG177194].
                                
 Lehman shares slipped 0.8 percent to $22.43 on the New
York Stock Exchange.
                                
 Besides selling bank shares, investors also hits shares of
companies whose fortunes are closely tied to economic cycles
and are heavily energy reliant, including U.S. plane maker
Boeing <BA.N>, which fell 1.6 percent to $67.14.
                                
 Technology was not spared, with BlackBerry maker Research
In Motion Ltd <RIMM.O><RIM.TO> falling 3 percent to $119.82
and leading declines on the Nasdaq.
                                
 Home builders' shares tumbled after KB Home <KBH.N>, the
No. 5 U.S. home builder, posted a wider-than-expected
quarterly loss. The stock fell 1.8 percent to $17.81 on the
NYSE.
 (Additional reporting by Walker Simon; Editing by Jan
Paschal)