May 13, 2020 / 5:22 PM / 19 days ago

US STOCKS-Wall Street falls on Powell's grim outlook

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* Fed's Powell calls for more fiscal spending

* Bank stocks tumble as Treasury yields slip

* Royal Caribbean falls after $3.3 bln bond offering

* Indexes fall: Dow 2.09%, S&P 1.84%, Nasdaq 1.85% (Updates to early afternoon)

By Medha Singh and Ambar Warrick

May 13 (Reuters) - U.S. stocks fell sharply for the second day on Wednesday after Federal Reserve Chairman Jerome Powell warned of an extended period of weak growth and stagnant incomes due to the coronavirus pandemic, dashing hopes of a quick economic recovery.

It will take some time for the U.S. economy to get back to where it was, Powell said in a webcast, as he pledged to use the U.S. central bank's power as needed and called for more fiscal stimulus.

However, Powell made it clear the Fed won't push interest rates below zero, as traders had been increasingly betting.

"Powell's doing the right thing by warning people that this is not just going to be a V-shaped recovery," said Sam Hendel, president and co-portfolio manager of New York-based Levin Easterly Partners.

"I think the market may be overstating the ease of returning back to normal."

Powell's comments came a day after a warning from leading U.S. infectious disease expert Anthony Fauci prompted a sharp selloff in equities, as investors fretted over how the economy would reemerge from weeks of virus-related lockdowns.

Wall Street's fear gauge rose for the second day to hit a one-week high on Wednesday.

"Volatility is likely to persist because there's a lot of uncertainty on how this virus plays out," said Brian Levitt, global market strategist for Invesco.

Fears of a second wave of COVID-19 infections have also emerged in recent weeks, pouring cold water on hopes of a swift recovery that helped the three main U.S. stock indexes climb about 30% from their March lows.

At 1:01 p.m. ET, the Dow Jones Industrial Average was down 496.84 points, or 2.09%, at 23,267.94, the S&P 500 was down 52.72 points, or 1.84%, at 2,817.40. The Nasdaq Composite was down 166.78 points, or 1.85%, at 8,835.77.

Energy stocks dropped 4.3%, the steepest percentage losses among the 11 major S&P sectors. Interest rate-sensitive bank shares shed 4.4%, tracking a fall in U.S. Treasury yields.

Royal Caribbean Cruises Ltd launched a $3.3 billion bond offering, pledging 28 of its ships as collateral and forecast heavy losses for the first quarter, sending its shares down 4.7%.

Declining issues outnumbered advancers for a 7.29-to-1 ratio on the NYSE and a 5.52-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 11 new lows, while the Nasdaq recorded 30 new highs and 87 new lows. (Reporting by Medha Singh and Ambar Warrick in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)

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