Stocks fell on Monday after a warning from a prominent analyst revived worries over the health of banks and the potential collapse of a takeover of Sun Microsystems bruised sentiment in the technology sector.

Bank shares tumbled 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 as the market attempts to recover from 12-year lows hit in early March.

Among financials shares, JPMorgan tumbled 4.5 percent to $27.96, while Wells Fargo dropped 6 percent. The KBW Bank index <.BKX> fell 4.5 percent to $29.40.

The banking system certainly is going to have problems longer term and I think you're going to have to expect there's going to be a struggle there for the next 18 to 24 months, said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.

Shares of Sun Microsystems Inc. dove 24.5 percent to $6.41 after a source with knowledge of the matter told Reuters that talks with IBM to acquire its smaller rival broke down. IBM lost 1.7 percent to $101.51 and was the top drag on the Dow.

The Dow Jones industrial average <.DJI> fell 138.03 points, or 1.72 percent, to 7,879.56. The Standard & Poor's 500 Index <.SPX> gave up 17.28 points, or 2.05 percent, at 825.22. The Nasdaq Composite Index <.IXIC> lost 35.36 points, or 2.18 percent, to 1,586.51.

Adding to the negative tone, billionaire investor George Soros said 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 big manufacturers, whose fortunes are closely linked to the economic cycle, were among the top laggards, with Caterpillar down 5 percent to $30.56.

A drop in oil prices hit energy shares, with Exxon Mobil down 1.6 percent to $69.29. U.S. front month crude fell $2.31 to $50.20 a barrel.

Since hitting a bear market closing low on March 9, the S&P 500 is up 22 percent, spurred by hopes that the economic slump is abating and banks are 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 last week, racking up the best four weeks for Dow since 1933.

(Editing by Theodore d'Afflisio)