S&P below 700 as banks' future still in question

By Leah Schnurr

NEW YORK (Reuters) - Stocks fell in volatile trading on Tuesday, with the S&P ending below 700 for the first time since October 1996 as persistent uncertainty about the amount of money needed to shore up the financial system overshadowed a hunt for bargains.

Stocks swung to both sides of the break-even mark throughout the session with the S&P's ultimate break below the key psychological level of 700 adding to the gloom.

Federal Reserve Chairman Ben Bernanke left the door open to whether banks will need more money when he said the size of a $700 billion bank-rescue package would depend on bank "stress tests" being conducted by regulators and the economy's direction.

An S&P index of bank stocks .GSPF fell 1.6 percent, with Goldman Sachs (GS.N) off 4.5 percent at $82.37 and PNC Financial Services (PNC.N) down 5 percent at $24.82.

"His comments were a reality check for the market that nothing changed between yesterday and today," said Jim Awad, managing director at Zephyr Management in New York.

"It renewed fears that there is no bottom in terms of toxic assets and no bottom in terms of need for capital."

The Dow Jones industrial average .DJI fell 37.27 points, or 0.55 percent, to 6,726.02. The Standard & Poor's 500 Index .SPX lost 4.49 points, or 0.64 percent, to 696.33. The Nasdaq Composite Index .IXIC shed 1.84 points, or 0.14 percent, to 1,321.01.

The S&P is down nearly 23 percent for the year so far and has given up more than 55 percent since the high hit in October 2007.