US STOCKS-Wall St ends the week flat as oil prices weigh

* Oil surges as Libya clashes intensify

* Banks slide after Merrill downgrades Goldman, Citigroup

* Indexes off: Dow 0.7 pct, S&P 0.7 pct, Nasdaq 0.5 pct

* For up-to-the-minute market news see [STXNEWS/US]

(Updates to close)

By Angela Moon

NEW YORK, March 4 (Reuters) – Wall Street erased most of
its weekly gains on Friday as fears of more geopolitical
turmoil and higher oil prices threaten to stifle rallies in
coming weeks.

The worries overshadowed strong labor market news. U.S.
unemployment fell below 9 percent for the first time in nearly
two years, but investors quickly turned to focus on intensified
fighting in Libya and simmering unrest throughout the region.
For details, see [ID:nLDE72300M]

Brent crude prices (LCOc1: Quote, Profile, Research) rose above $116 a barrel and the
CBOE Volatility Index VIX (.VIX: Quote, Profile, Research), Wall Street’s so-called fear
gauge, rose 2.7 percent to 19.11.

“After the kind of rally we had, the market is more
vulnerable to news events and more so these days on a spike in
oil prices,” said Randy Frederick, director of trading and
derivatives at the Schwab Center for Financial Research in
Austin, Texas.

Data earlier in the week had raised expectations about
Friday’s employment report, lifting stocks to their biggest
gains in three months on Thursday.

But bank shares fell after Bank of America Merrill Lynch
said first-quarter earnings could be hurt by rising oil prices
as well as by reduced client activity.

The brokerage downgraded shares of Citigroup Inc (C.N: Quote, Profile, Research) and
Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) to “neutral” from “buy.”

Goldman fell 2.1 percent to $161.00 and Citi dropped 3
percent to $4.54. The KBW bank index (.BKX: Quote, Profile, Research) lost 1.5 percent.

The Dow Jones industrial average (.DJI: Quote, Profile, Research) was down 88.32
points, or 0.72 percent, at 12,169.88. The Standard & Poor’s
500 Index (.SPX: Quote, Profile, Research) was down 9.82 points, or 0.74 percent, at
1,321.15. The Nasdaq Composite Index (.IXIC: Quote, Profile, Research) was down 14.07
points, or 0.50 percent, at 2,784.67.

For the week, the Dow rose 0.3 percent and the S&P and the
Nasdaq both gained 0.1 percent.

About 7.73 billion shares traded on the New York Stock
Exchange, NYSE Amex and Nasdaq, below last year’s daily average
of 8.47 billion.

The Labor Department said payrolls rose by 192,000 in
February, slightly above the 185,000 gain forecast in a Reuters
poll, and the unemployment rate unexpectedly dipped to 8.9
percent from 9 percent. [ID:nOAT004757].
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SNAP ANALYSIS: U.S. jobs data showing some consistency [ID:nN04292473] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Among consumer-related shares, the homebuilding sector was
hurt the most. The PHLX housing index (.HGX: Quote, Profile, Research) fell 1.3 percent
with Weyerhaeuser (WY.N: Quote, Profile, Research) down 2.2 percent to $23.57. KB Home
(KBH.N: Quote, Profile, Research) shares dropped 2.6 percent to $13.08 and MDC Holdings
(MDC.N: Quote, Profile, Research) fell 2.6 percent to $24.99.
(Reporting by Angela Moon, Editing by Kenneth Barry)