U.S. stocks fell on Monday due to uncertainty about the likely success of the government's latest bid to shore up beleaguered banks, including Citigroup , and a drop in technology shares pulled indexes lower.

Initially, investors welcomed reports that the government could convert an earlier investment in Citigroup into a larger common stock holding as a sign the United States is ready to forestall further paralysis of the financial system.

But as trading progressed, long-standing fears resurfaced about just how the government would stabilize the banking system and this, coupled with battered confidence in the government's steps so far, pulled the market lower.

Worries about a fall off in capital spending hurt technology shares, which had been spared somewhat in the recent broad market sell-off, and the tech-heavy Nasdaq fell 2 percent.

Market drags included International Business Machines Corp , down 1.7 percent to $87.29, while Apple Inc , declined 3 percent to $88.47. Shares of Citigroup and Bank of America were higher by nearly 11 percent 8 percent respectively, but were off their highs, and the S&P financial index <.GSPF> turned flat.

There's just uncertainty about what stance the government will take, whether there's nationalization or not, or some form of it that we're in currently. But it doesn't matter, the economy remains weak, the market is worried about earnings, said Peter Boockvar, equity strategist at Miller Tabak & Co.

The Dow Jones industrial average <.DJI> fell 77.18 points, or 1.05 percent, to 7,288.49. The Standard & Poor's 500 Index <.SPX> declined 10.67 points, or 1.39 percent, to 759.38. The Nasdaq Composite Index <.IXIC> tumbled 29.06 points, or 2.02 percent, to 1,412.17.

Citigroup, which ended Friday down 22 percent, was up 10.3 percent at $2.15, while Bank of America gained 7.7 percent to $4.08.

The market's latest technical deterioration has pushed the Dow down to its lowest in 6-1/2 years, while the S&P 500 remains within striking distance of breaking through its November lows, a breach that will see it taking aim at levels last seen in 1997.

(Editing by James Dalgleish)