U.S. stocks fell on Friday, pinning the Dow to levels not seen for more than six years, as investors worried that a financial sector rescue might involve nationalization of major banks, wiping out shareholders.

The mounting fear sent investors scurrying to the relative safety of U.S. government bonds and gold, which rose briefly above $1,000 an ounce.

Shares of Bank of America fell more than 14 percent to $3.37, while Citigroup slid more than 20 percent to $2.01. Citi swung briefly below the $2 mark and contributed to a 4.8 percent drop in the KBW Banks index <.BKX>.

The sell-off stems from concern over financials, especially Citi and BAC, and concern that they will be nationalized, said Ryan Larson, head of equity trading at Voyageur Asset Management in Chicago. The tone is negative and financials are bringing down the wider market but we are seeing some buying going on.

The Dow Jones industrial average <.DJI> shed 76.30 points, or 1.02 percent, to 7,389.65. The Standard & Poor's 500 Index <.SPX> lost 8.16 points, or 1.05 percent, to 770.78. The Nasdaq Composite Index <.IXIC> dipped 2.90 points, or 0.20 percent, to 1,439.92.

Even so, bargain hunting in the technology sector lifted shares of semiconductor companies, which helped limit the Nasdaq's losses. Intel Corp was among the Nasdaq's standouts, up 1.2 percent at $12.83, along with Intuit Inc which posted a smaller-than-expected drop in quarterly profit. Its stock jumped more than 10 percent to $23.44

A broker upgrade on AT&T and Verizon lifted telecoms, making the sector a top Dow boost.

But even with those positive spurs, investors still took flight from other key sectors, including energy, amid a drop in oil prices, and in the shares of big manufacturers.

Chevron declined 2.4 percent to $65.07, while General Electric sagged 8 percent to $9.26.

After the Dow broke its November lows on Thursday to hit fresh bear market lows, investors are worried that its breach suggests the benchmark S&P 500 <.SPX> may not be far from violating three-month lows as the gloom persists, and a retest of levels not seen since 1997 may be looming.

The backdrop for the latest damage in the market is the failure last week by U.S. Treasury Secretary Timothy Geithner to restore confidence in the financial system when he unveiled a financial sector rescue that fueled uncertainty about how banks would be relieved of their toxic assets.

Additionally there are concerns that the $787 billion economic stimulus signed into law by U.S. President Barack Obama this week might not blunt the impact of the recession soon enough.

(Additional reporting by Edward Krudy; Editing by James Dalgleish)