UPDATE 3-BofA shares tumble 25 pct, rest of sector weak

(Recasts first four paragraphs, adds analyst comment, background, updates stock prices)

By Elinor Comlay and Juan Lagorio

NEW YORK, Oct 7 (Reuters) - Financial stocks, led by Bank of America Corp (BAC.N), fell sharply on Tuesday, a day after the bank said it is selling $10 billion in new stock and on worries other banks may also need to raise cash as they struggle with the weak economy.

Bank of America shares fell 25 percent, while JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) slumped 9 percent and 11 percent respectively. The Dow Jones U.S. financial index .DJUSFN sank nearly 9 percent.

Charlotte, North Carolina-based Bank of America reported a steeper-than-expected 68 percent fall in quarterly profit on Monday, cut its dividend in half and announced the plans to raise fresh cash.

Some investors and analysts saw the capital raise as an attempt to beat rivals to the market while there is still an appetite for financial shares as the credit crunch intensifies.

"(Lower) earnings, cutting dividends, forecasting difficult times ahead -- I think that's going to be the mantra for most companies reporting, particularly in the financial area," said Robert Lutts, chief investment officer of Cabot Money Management in Salem, Massachusetts.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth Lewis, chairman and chief executive officer, said Monday in a statement.

"It was a perfect storm kind of quarter," he said later in a conference call with analysts.