* Stocks stabilize after decline, but caution remains
* S&P 500 on track for worst week since November
* Oracle slides after results miss, drags on Nasdaq
* Dow, S&P up 0.2 pct, Nasdaq down 0.5 pct
By Ryan Vlastelica
NEW YORK, June 21 (Reuters) - U.S. stocks were flat on Friday, ending two days of heavy losses and heading for the worst weekly performance since November as traders fretted over planned changes to the Federal Reserve's easy money policy.
Trading was volatile, with major averages fluctuating between modest gains and losses, though the Nasdaq was pressured throughout the day by a steep decline in Oracle Corp, which dropped after weak results.
Shares have slumped since Wednesday when Federal Reserve Chairman Ben Bernanke laid out the Fed's plans to pull back on its $85 billion in monthly asset purchases. The current pullback is the largest since an 8.9 percent decline between September and November.
When trading began on Friday, the S&P 500 had fallen nearly 5 percent from an all-time closing high of 1,669.16 on May 21. However, stocks rebounded after a Wall Street Journal analysis said the market may be misreading the Fed and that a reduction in bond buying may not come as soon as some expect.
"I think the markets overreacted to the Fed announcement, since it was fairly positive about economic growth going forward," said John Carey, portfolio manager at Pioneer Investment Management in Boston. "I don't see this turbulence as a sign of a serious downturn."
While the S&P 500 was slightly positive by afternoon, the 10-year Treasury yield rose to 2.49 percent, only slightly below the day's highs, as investors reset expectations after Bernanke gave a more explicit timeline for scaling back its bond-buying.
Volatility has spiked since May 22 when Bernanke first hinted that the Fed may begin to rein in its stimulus measures. The CBOE Volatility Index, a gauge of anxiety on Wall Street, jumped 23 percent on Thursday to 20.49, the first time this year it closed above 20. On Friday it fell 7 percent to 18.90.
The Dow Jones industrial average was up 24.61 points, or 0.17 percent, at 14,782.93. The Standard & Poor's 500 Index was up 2.75 points, or 0.17 percent, at 1,590.94. The Nasdaq Composite Index was down 16.03 points, or 0.48 percent, at 3,348.60.
So far this week, the Dow is down 1.9 percent, the S&P is down percent 2.2 percent, and the Nasdaq is down 2.2 percent. It was the biggest weekly decline for all three since November and also the second straight week of losses.
Shares of major banks were hit hard as the Treasuries sell-off continued on fears of losses from their bond holdings. Citigroup dropped 2.5 percent to $46.70 and Morgan Stanley lost 0.9 percent to $24.92. Bank of America Corp fell 1.2 percent to $12.73.
"Investors are very nervous about financials, but I think they'll come back to the group when earnings are shown to be holding up," said Carey, who helps oversee $200 billion. At these levels, he added, "I would look for opportunities in the group."
Oracle Corp dropped 8.9 percent to $30.25 a day after the tech giant missed expectations for software sales and subscriptions for a second straight quarter. Oracle was the biggest drag on both the S&P 500 and the Nasdaq.
Analysts pointed to the quarterly expiration and settlement of June equity options and futures contracts on Friday as another source of volatility.
About $14 billion is expected to change hands in trading related to index rebalancing towards the session's close, which could compound volatility, according to Credit Suisse.
S&P Dow Jones Indices said Thursday that News Corp's spinoff - also known as News Corp - will replace Apollo Group in the S&P 500. Apollo fell 3.6 percent to $19.01.
China's central bank faced down the country's cash-hungry banks on Friday, letting interest rates spike as it increased pressure on banks to curb rampant informal lending and speculative trading. Some worry that its approach could backfire, creating the potential for defaults and gridlock in the money markets of the world's second-largest economy.