US STOCKS-Wall St falls as Fed action hits bank stocks, virus cases surge

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* Nike falls after surprise quarterly loss
* U.S. lenders slip as Fed caps shareholder payout
* Gap jumps after tie up with Kanye West
* Indexes fall: Dow 2.07%, S&P 1.77%, Nasdaq 1.94%

(Adds quote, details; updates prices)
By Medha Singh and Devik Jain
June 26 (Reuters) - Wall Street's major indexes dropped on
Friday as the United States set a new record for a one-day
increase in coronavirus cases and bank stocks tumbled after the
Federal Reserve decided to cap shareholder payouts.
The S&P 500 banks sub-index .SPXBK declined 5% after the
Fed limited dividend payments and barred share repurchases until
at least the fourth quarter following its annual stress test.
In the previous session, banks stocks had powered Wall
Street's main indexes higher, helping them offset investor fears
due to rising virus infections in several U.S. states, including
Texas, Oregon and Utah.
Cases rose across the United States by at least 39,818 on
Thursday. Texas, which has been at the forefront of easing
restrictions, paused its reopening plans after the state
recorded its one of the biggest jumps in new infections.
"States are rethinking the reopening and that's going to
affect a lot of businesses," said David Yepez, lead equity
analyst and portfolio manager at Exencial Wealth Advisors in
Oklahoma.
"We're not going to test those March lows but there could be
a correction, because we got a little bit too high."
The uptick in cases has also threatened to derail a strong
rally for Wall Street that brought the S&P 500 within 10.7% of
its February all-time high on the back of record government
stimulus measures. The benchmark index was also testing its the 200-day moving
average, an indicator of long-term momentum. If it closes below
the key level, it could signal further losses.
At 11:02 a.m. ET, the Dow Jones Industrial Average .DJI
was down 532.55 points, or 2.07%, at 25,213.05, the S&P 500
.SPX was down 54.56 points, or 1.77%, at 3,029.20. The Nasdaq
Composite .IXIC was down 194.40 points, or 1.94%, at 9,822.61.
Nike Inc NKE.N dropped 5.8% as the footwear maker posted
reported a surprise quarterly loss hurt by store closures due to
the pandemic. Facebook Inc FB.O shed 6.4% after Verizon Communications
Inc VZ.N joined an advertising boycott that called out the
social media giant for not doing enough to stop hate speech on
its platforms.
Gap Inc GPS.N surged 31.4% after it entered into a 10-year
deal with rapper and fashion designer Kanye West to create a
Yeezy line of clothing. Data showed U.S. consumer spending rebounded by the most on
record in May, but the gains are not likely to be sustainable,
as income declined and expected to fall further as millions lose
their unemployment checks starting next month. Friday also marks the reconstitution of the FTSE Russell
indexes, including large cap Russell 1000 .RUI and small cap
Russell 2000 .RUT , that often marks one of the biggest trading
volume days of the year.
Declining issues outnumbered advancers for a 6.40-to-1 ratio
on the NYSE and for a 5.92-to-1 ratio on the Nasdaq.
The S&P index recorded five new 52-week highs and no new
low, while the Nasdaq recorded 39 new highs and 13 new lows.