By Justin Grant

NEW YORK (Reuters) - U.S. stocks fell on Friday after a cash crunch forced Bear Stearns to secure emergency funding, triggering a sell-off in financial shares and fanning concerns about an escalating credit crisis.

All three major indexes briefly lost more than 2 percent after JPMorgan Chase & Co and the Federal Reserve Bank of New York agreed to provide emergency short-term financing to Bear Stearns, the fifth-largest U.S. investment bank.

Bear Stearns, whose stock plunged as much as 50 percent in morning trading, said the money would let it continue normal operations.

The Standard & Poor's financial index fell 3.7 percent as investors feared there could be more trouble in the financial sector.

Exposure to the escalating housing crisis prompted Moody's Investors Service to downgrade Washington Mutual to one notch above junk status, sending the largest U.S. savings-and-loan's shares down 9.7 percent.

Top drags included shares of Lehman Brothers Holdings, which fell 10.7 percent; Citigroup Inc, down 5.7 percent, and JPMorgan Chase, which fell 3.4 percent.

"If you think about Bear Stearns, the leverage of these investment banks is huge. What's going to have to get liquidated?," asked Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, California.

The Dow Jones industrial average shed 228.52 points, or 1.88 percent, to 11,917.22. The Standard & Poor's 500 Index slid 29.74 points, or 2.26 percent, to 1,285.74. The Nasdaq Composite Index dropped 51.59 points, or 2.28 percent, to 2,212.02.