* U.S. banks follow European peers lower
* Richly valued stocks drop again
* Cognizant falls after weak forecast
* Indexes down: Dow 2.07 pct, S&P 2.08 pct, Nasdaq 2.61 pct (Updates to early afternoon)
By Abhiram Nandakumar
Feb 8 Wall Street sank sharply on Monday as financial stocks sold off amid worries about interest rates and investors backed off from richly valued tech and consumer stocks amid persistent fears of a global slowdown.
The technology-heavy Nasdaq Composite fell 2.5 percent to its lowest since October 2014, weighed down by Microsoft, Amazon and Facebook, stocks that lent strength to the market last year.
All 10 major S&P sectors were down, with the 3.15 percent fall in financial stocks leading the decliners as they followed European banks lower.
U.S. crude oil prices eased from their session lows, but were still down 2.8 percent, while Brent was off 2 percent. Global stock markets have closely tracked the rise and fall in the price of the oversupplied commodity this year.
"Equities are in a 'go-nowhere-fast' mode, with a downward bias in the near term," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
Investors have also been worried about the unraveling of rich valuations in a narrow group of stocks that led the market higher through most of 2015.
"What you've seen regarding technology and other sectors is that the (higher) valuations are being ratcheted back down closer to the underlying fundamentals that are going to support their growth, if its there," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management in Chicago.
At 13:04 p.m. ET (1804 GMT), the Dow Jones industrial average was down 335.5 points, or 2.07 percent, at 15,869.47.
The S&P 500 was down 39.08 points, or 2.08 percent, at 1,840.97.
The Nasdaq Composite index was down 113.75 points, or 2.61 percent, at 4,249.40. The index is on track for its worst two-day fall since August.
Gold prices rose to their highest since June and the yield on 30-year U.S. treasuries hit their lowest since April.
The CBOE volatility index, seen as a measure of Wall Street's fear, was up 14 percent, its biggest jump in a month.
Chesapeake Energy tumbled 35 percent to $1.97 after sources told Reuters that the natgas company had tapped existing adviser Kirkland & Ellis to explore restructuring options. Chesapeake said it has no plans to pursue a bankruptcy.
Among financials, Goldman Sachs dropped 6.5 percent, set for its biggest drop in more than three years and weighing the most on the Dow.
The financials sector, down 15 percent for the year is the worst performing among the 10 major S&P sectors on increasing uncertainty about when the U.S. Federal Reserve will raise rates again.
Microsoft, Amazon, Alphabet and Facebook were down between 2.5 percent and 5 percent.
Cognizant dropped 7 percent to $54.46 after the IT services provider issued a weak sales forecast.
Declining issues outnumbered advancing ones on the NYSE by 2,630 to 429. On the Nasdaq, 2,140 issues fell and 586 rose.
The S&P 500 index showed five new 52-week highs and 82 lows, while the Nasdaq recorded two new highs and 419 lows. (Reporting by Abhiram Nandakumar in Bengaluru; Editing by Savio D'Souza)
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