U.S. stocks slid on Monday, as a prominent analyst warned the bank sector's problems still have further to run and the potential collapse of a takeover of Sun Microsystems hurt sentiment in the technology sector.

Bank shares stumbled after veteran analyst Mike Mayo, of Calyon Securities, cited the ongoing consequences of risk-taking by banks and warned of rising loan losses by the end of 2010. He rated a number of big and regional banks at underperform or sell.

The renewed worries about banks came on the heels of a four-day rally and dealt a major setback to the market's attempted recovery from 12-year lows hit early last month.

Among financials shares, JPMorgan tumbled 3 percent, while Wells Fargo dropped 6 percent. The KBW Bank index <.BKX> fell more than 4 percent.

There were a lot of downgrades this morning of some key names, significant stocks that are on a lot of people's watch list, said Cleveland Rueckert, market analyst at Birinyi Associates in Stamford, Connecticut.

We've got a market that is very overbought and a lot of the sectors are at the top end of the rages that we track -- it really didn't take much to get people selling.

The Dow Jones industrial average <.DJI> dropped 136.12 points, or 1.70 percent, to 7,881.47. The Standard & Poor's 500 Index <.SPX> fell 17.46 points, or 2.07 percent, to 825.04. The Nasdaq Composite Index <.IXIC> lost 36.54 points, or 2.25 percent, to 1,585.33.

Adding to the negative tone were comments from billionaire investor George Soros that the U.S. economy was in for a lasting slowdown and that it wouldn't recover in 2009. He also said the banking system as a whole is basically insolvent.

Shares of Sun Microsystems Inc. tumbled 23.4 percent to $6.50 after a source with knowledge of the matter told Reuters that talks with IBM to acquire its smaller rival broke down. IBM slid 1.2 percent to $101.04 and was among the top drags on the Dow.

Talk about the banks and canceled deals aren't good either. Tech was performing and you don't want to hear anything bad out of there, said Frank Lesh, futures analyst and broker at FuturePath Trading LLC in Chicago.

Shares of big manufacturers, whose fortunes are closely linked to the economic cycle, featured among the top drags, with Caterpillar down nearly 6 percent to $30.24.

A drop in oil prices hit energy shares, with Exxon Mobil down 1.4 percent to $69.42. U.S. front month crude fell 3.8 percent to $50.51 per barrel.

The S&P 500, since hitting a bear market closing low on March 9, is up 22 percent, partly on hopes that the economic slump was abating and banks were stabilizing.

The recent momentum in financials and sectors such as technology, which analysts say may lead a recovery, helped the market notch a fourth straight weekly advance at the end of last week, making it best four weeks for Dow since 1933.

The KBW Bank index fell 4.7 percent, while Citigroup shed 4.2 percent to $2.73 and Bank of America was down 1.7 percent to $7.47.

Cisco Systems shares slid 4.9 percent to $17.27 and was one of the top weights on the Nasdaq after Goldman Sachs cut the stock to a neutral rating and removed it from the firm's Conviction Buy list.

(Additional reporting by Charles Mikolajczak; Editing by Leslie Adler)

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