(Updates volume in fourth paragraph)

By Edward Krudy

NEW YORK (Reuters) - U.S. stocks fell in very lightvolume Tuesday as investors seized on renewed concerns aboutEuropean banks as a reason to sell shares after strong gainslast week.

Banks, energy companies and chipmakers were the biggestdecliners. Some analysts said the drop after Wall Street's bestweek in the past two months shows the market is likely toremain range-bound.

"It looks more like a consolidation than some type ofconviction selloff," said Maier Tarlow, a New York StockExchange floor trader at Raven Securities. "We think that themarket has got a bullish trend now, and unless we see repeatedselloffs on better volume, we're going to keep that opinion."

Trading was among the lightest of the year, with 6.07billion shares changing hands on the NYSE, Nasdaq and Amexcombined. That contrasted with the 2009 average daily volume of9.65 billion shares. Light volume tends to exaggerate marketmoves and can indicate a lack of conviction.

Worry about Europe's banks resurfaced after the Wall StreetJournal reported major lenders understated holdings inpotentially risky government debt during tests designed toprobe banks' strength.

Although investors said the report contained little newinformation, it was enough to help spur profit-taking. Bank ofAmerica Corp fell 2.1 percent and JP Morgan Chase & Co lost 2.3 percent.

"There's concern about the health about the European bankingsector," said Tom Schrader, managing director of U.S. equitytrading at Stifel Nicolaus Capital Markets in Baltimore. "Thatfear kind of comes and goes."

The Dow Jones industrial average fell 107.24 points,or 1.03 percent, at 10,340.69. The Standard & Poor's 500 Indexlost 12.67 points, or 1.15 percent, at 1,091.84. TheNasdaq Composite Index shed 24.86 points, or 1.11percent, at 2,208.89.

The decline ended a four-day rally for the S&P 500,although it was the magnitude of last week's move, not theduration, that was striking. The index jumped more than 5percent over the last three days of the week on solid volume.

"We had a couple of days of nice buying on good volumewhich was an indication that institutions were stepping back into buy stocks," said Tarlow.

Tuesday's losses followed the long Labor Day holidayweekend when most senior traders start returning to the office.Indexes had regained ground last week afterstronger-than-expected U.S. payrolls and manufacturing datahelped to quell fears of a double-dip recession.

The KBW Bank index lost 3.2 percent and the S&Pfinancial index fell 2.4 percent. Bank of America fellto $13.21 and JP Morgan Chase was down to $38.28.

Also weighing on banks, Germany's banking association saidthe country's 10 biggest banks may need 105 billion euros innew capital as regulators revamp rules designed to preventfuture crises.

European bank shares traded on Wall Street also lostground. Barclays PlcU.S.-traded shares dropped 5.7percent to $19.13, while Deutsche Bank AGADRs were down3.2 percent at $62.52, and UBS AGADRs dipped2.9 percent to $17.52.

Decliners outnumbered advancers by about three to one onthe New York Stock Exchange.

Bruce Zaro, chief technical strategist at Delta GlobalAdvisors in Boston, said he expected markets to remain volatileand range-bound until after U.S. elections in November. Thenmarkets could rally sharply, he said.

"I don't think it's necessarily a reversal that has a lotof upside from here," he said of last week's rally. Part of themove was "a reactionary bounce to the pretty dramatic sellingwe had in August," he said.

Zaro said he saw the S&P 500 hitting a ceiling at around1,120 to 1,130, with a downside limit at around 1,000 before alate-year rally after the elections.

Among advancers, Oracle Corp jumped 5.9 percent to$24.26 after the world's third-largest software maker hiredMark Hurd, the former boss at Hewlett-Packard Co, aspresident.

U.S. Steel Corp attracted bullish option activity onrenewed takeover speculation. Its shares rose 4.6 percent to$48.09, with one analyst citing ArcelorMittal <ISPA.AS> as apotential buyer. ArcelorMittal dropped 0.1 percent in New Yorkto $31.52. (Reporting by Edward Krudy; Additional reporting by DorisFrankel; Editing by Kenneth Barry)