* Ten US banks to pay $8.5 bln to end foreclosure reviews
* Amazon stock hits all-time high on Morgan Stanley view
* Disney looks for cost savings, sources say; shares fall
* Indexes off: Dow 0.6 pct, S&P 0.6 pct, Nasdaq 0.4 pct
By Angela Moon
NEW YORK, Jan 7 U.S. stocks fell on Monday as banks agreed to pay billions in a settlement with U.S. regulators and investors speculated that U.S. earnings for the end of 2012 would be only modestly better than in the previous quarter.
Financials declined after a group of home mortgage servicers, including major U.S. banks, agreed to pay a total of $8.5 billion to end a government-ordered, case-by-case review of foreclosures.
The KBW bank index, a gauge of U.S. bank stocks, was down 0.7 percent.
Earnings are expected to be only slightly better than the third-quarter's lackluster results, and analysts' current estimates are down sharply from what they were in October.
"There is little doubt that concerns about the fiscal cliff created spending hesitancy in both consumers and businesses in the fourth quarter, and it is likely that will adversely impact earnings season," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab.
Aluminum company Alcoa Inc will unofficially launch the reporting season by announcing its results after Tuesday's market close.
The Dow Jones industrial average was down 77.33 points, or 0.58 percent, at 13,357.88. The Standard & Poor's 500 Index was down 8.69 points, or 0.59 percent, at 1,457.78. The Nasdaq Composite Index was down 12.39 points, or 0.40 percent, at 3,089.26.
The day's decline came a session after the S&P 500 finished at a five-year high and investors booked profits on stocks' best weekly gain in more than a year, boosted by a budget deal and economic data. The S&P 500 rose 4.6 percent last week.
Ten mortgage servicers - including Bank of America, Citigroup, JPMorgan, and Wells Fargo - agreed on Monday to pay $8.5 billion to end a case-by-case review of foreclosures required by U.S. regulators.
Bank of America also announced roughly $11.6 billion of settlements with mortgage finance company Fannie Mae and a $1.8 billion sale of collection rights on home loans.
The bank also entered into agreements with Nationstar Mortgage Holdings and Walter Investment Management to sell about $306 billion of residential mortgage servicing rights.
Bank of America shares were down 0.6 percent at $12.04 while Nationstar Mortgage Holdings jumped 11.3 percent to $36.97.
JPMorgan shares were down 0.4 percent at $45.16 and Citigroup shares were down 0.8 percent to $42.07. Wells Fargo shares fell 1.1 percent to $34.55.
Walt Disney Co started an internal cost cutting review several weeks ago that may include layoffs at its studio and other units, three people with knowledge of the effort told Reuters. Disney shares fell 2.4 percent to $50.95.
Video-streaming service Netflix Inc shares gained 5.8 percent to $101.55 after it said it will carry previous seasons of some popular shows produced by Time Warner's Warner Bros Television.
Amazon.com shares hit their highest price ever at $269.22 after Morgan Stanley raised is rating on the stock. Shares were up 3.3 percent at $267.77.
Major U.S. technology companies could miss estimates for fourth-quarter earnings as budget worries likely led some corporate clients to tighten their belts last month.
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