* Obama proposes tougher restrictions on banks
* Goldman Sachs, JPMorgan, other bank shares fall
* Volatility index jumps 19 percent
* Indexes off: Dow 2 pct, S&P500 1.9 pct, Nasdaq 1.1 pct
* For up-to-the-minute market news, click []
(Updates to close)
By Caroline Valetkevitch
NEW YORK, Jan 21 (Reuters) - U.S. stocks suffered their
worst one-day percentage drop since October on Thursday as U.S.
President Barack Obama proposed tough restrictions on banks
that would squeeze profits.
Major banks slid, with Goldman Sachs <GS.N> falling 4.1
percent despite posting stronger-than-expected fourth-quarter
results, and JPMorgan Chase & Co <JPM.N> shed 6.6 percent,
after Obama proposed limiting how banks invest their own
money.
"It looks as though banks may be going down the path of
being regulated like utilities," said Tom Sowanick, chief
investment officer at The Omnivest Group in Princeton, New
Jersey.
Obama said banks should no longer be allowed to own,
sponsor or invest in hedge funds for proprietary profit. For
details, see []. Proprietary trading -- when a
firm uses its own money to make bets on markets -- has been an
engine of earnings for some major banks.
The proposals must receive congressional approval.
The Dow Jones industrial average <> fell 213.27 points,
or 2.01 percent, to end at 10,389.88. The Standard & Poor's 500
Index <.SPX> was down 21.56 points, or 1.89 percent, at
1,116.48. The Nasdaq Composite Index <> was down 25.55
points, or 1.12 percent, at 2,265.70.
The Dow had its worst two-day percentage decline since
June, while the Dow and S&P 500 had their worst one-day
percentage losses since late October.
It was the second straight day of steep losses for stocks,
with the market falling from 15-month highs on Wednesday on
worries over China's curbs on bank lending.
After the market's close, shares of Google Inc <GOOG.O>
fell 4.8 percent to $555 after the company reported quarterly
results. In regular trading the stock rose to $582.98 on the
Nasdaq.
In other markets, the dollar fell and bonds rose in a
flight to safety as the stock market tumbled on Obama's
announcement.
Shares of Goldman Sachs closed down at $160.87, while
JPMorgan Chase ended down at $40.54.
Morgan Stanley <MS.N> fell 4.2 percent to $29.34, while
Citigroup <C.N> fell 5.5 percent to $3.27 and Bank of America
<BAC.N> dropped 6.2 percent to $15.47.
The Select Sector SPDR Financial ETF <XLF.P> was down 2.7
percent.
Also contributing to Wall Street's slide were major energy
companies whose shares fell as oil prices dropped 2 percent to
$75.92 a barrel.
Exxon Mobil <XOM.N> shares were down 2 percent at $66.70.
Chevron Corp <CVX.N> fell 2.4 percent to $76.24.
The CBOE Volatility index <.VIX>, sometimes called Wall
Street's fear gauge, jumped as investors turned cautious after
the proposed restrictions on U.S. banks. The VIX was up about
19.2 percent.
Volume on the New York Stock Exchange was 1.5 billion
shares, about equal with last year's estimated daily average of
1.49 billion, while on the Nasdaq, about 2.89 billion shares
traded, above last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by
a ratio of 4 to 1, while declining stocks beat advancers on the
Nasdaq by about 10 to 3.
(Additional reporting by Jennifer Ablan; Editing by Kenneth
Barry)
