By Juan Lagorio

Confidence in the banking sector was also rattled as State Street Corp said it could need to raise capital, a day after Royal Bank of Scotland Group Plc posted the biggest loss in UK corporate history.

The rout was widespread, with regional banks like PNC Financial Services Group Inc getting hit hard and even relative islands of safety like J.P. Morgan Chase & Co getting hammered on concern about a worsening U.S. economy and banks' ability to withstand more credit losses without government help that could dilute shareholder interests.

"The market doesn't trust that banks have properly marked their balance sheets and their loan portfolios. The sense is there are further marks to come, that tangible book is not as it is stated today. We're looking for bottom; we'll find a bottom," said Robert Patten, a bank analyst for Morgan Keegan.

The KBW Bank Index <.BKX> plummeted 17.3 percent to a 13-year low. The index has fallen almost 42 percent this month.

Four analysts increased their 2009 loss estimates for Citigroup due to higher bad loans, sending the shares of the third-largest U.S. bank below the level they reached in November, when the government rescued it with an injection of $20 billion and a backstop on toxic assets.

In addition, Bank of America Corp stock fell to its lowest level since January 1991, as analysts said the U.S. largest bank will remain under pressure until it rebuilds its capital, four days after posting its first quarterly loss in 17 years.

Citigroup shares fell 18 percent, while Bank of America stock sank 240 percent.

"People are just assuming the worst," said Walter Todd, a portfolio manager at Greenwood Capital Associates.

The U.S. Treasury Department has asked big banks receiving government bailout funds to provide more details about lending, a sign of further pressure on the banks to increase credit -- and boost the economy -- as they are crippled with mounting losses.

LOSSES EVERYWHERE

On Monday, RBS said it was on course to report a 2008 loss of up to 28 billion pounds ($41 billion) after suffering hits from bad debts, while Britain threw its troubled banks another multibillion-pound lifeline -- the second since October.

RBS shares fell 11 percent on Tuesday, after sinking 67 percent on Monday, while Lloyds Banking Group Plc lost almost one-third of its value, hitting its lowest price in 20 years, and Barclays Plc lost 18 percent, despite the fresh government actions to pump money into the markets.

"We thought 2008 was bad. I think 2009 is going to be a continuation of that whole song," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.

"People are seeing a very fragile banking system, which is not going to be helpful to getting our economy back on track," said Robert Lutts, president and chief investment officer of Cabot Money Management.

Regions Financial Corp , a large U.S. Southeast regional bank, on Tuesday reported an unexpected $6 billion charge to write down parts of its banking business, bringing its fourth-quarter loss to $6.22 billion, and sending its shares down over 23 percent.

State Street lost 56 percent, more than half its value, after the world's biggest money manager for institutions reported higher unrealized losses in its commercial paper program and investment portfolio and said it could need to raise capital.

Shares of State Street and other trust banks, which had been seen as among the few safe investments in the financial sector, reached their lowest levels in more than a decade.

Among regional banks, PNC stock sank as much as 42 percent on worries that the seventh-largest U.S. bank by assets might suffer investment losses or need more capital to absorb bad loans at newly acquired National City Corp.

The financial stocks' free fall also dragged down J.P. Morgan, shares of which fell 18 percent after analysts cut their earnings outlook on the second-largest U.S. bank.

Wells Fargo & Co's shares tumbled 24 percent to their lowest level since March 2000 amid growing fears of lower earnings, dividend cuts and higher credit losses.

"Nothing can cure what took us four years getting into this mess other than time, over the next several quarters ... Nobody wants to venture and pick a bottom. There is just too much investor fatigue out there," Morgan Keegan's Patten said.

(Additional reporting by Elinor Comlay, and Joseph A. Giannone in New York, and Doris Frankel in Chicago, editing by Johhn Wallace and Gerald E. McCormick)