US STOCKS-Wall Street falls on renewed European debt worries

Last Updated: Mon, Mar 25, 2013 17:30 hrs

* Top official says Cyprus deal is template for euro zone fixes

* Stocks wipe out gains after initial optimism over Cyprus bailout

* Dell says two new proposals could be superior to take-private deal

* Apollo Group rallies after results beats estimates

* Indexes down: Dow 0.5 pct, S&P 0.4 pct, Nasdaq 0.4 pct

By Ryan Vlastelica

NEW YORK, March 25 (Reuters) - After gaining early on Cyprus's bailout, U.S. stocks fell on Monday on a top euro zone official's comments that Cyprus was a template for handling the region's other debt-strapped countries.

Investors grew cautious after Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times that when failing banks need rescuing, euro zone officials would turn to the bank's shareholders, bondholders and uninsured depositors to contribute to its recapitalization.

Such an approach would be a radical departure for euro zone policy after three years of crisis in which taxpayers across the region have effectively been on the hook for resolving problem banks and indebted governments.

"The fire in Europe hasn't been completely put out, though it has been tapered," said John Carey, portfolio manager at Pioneer Investment Management in Boston.

"There would be some unease if these problems persisted or got out of control."

Relief that Cyprus had reached a deal to avoid financial meltdown quickly reversed to drive safe-haven German Bunds higher and put peripheral bonds, including those of Spain and Italy, under pressure after Dijsselbloem's remarks.

In the 10 billion euro deal between Cyprus and the European Union, the European Central Bank and the International Monetary Fund the country's second-largest bank would be wound down and deposits below 100,000 euros shifted to the Bank of Cyprus to create a "good bank."

Deposits above 100,000 euros, which are uninsured, will be frozen and used to resolve debts and recapitalize the Bank of Cyprus.

Banking shares were among the ones hurt most by the Dijsselbloem comments. Shares of Morgan Stanley fell 1.4 percent to $21.88 while Bank of America dropped 1.2 percent to $12.41.

The Dow Jones industrial average was down 71.57 points, or 0.49 percent, at 14,440.46. The Standard & Poor's 500 Index was down 5.50 points, or 0.35 percent, at 1,551.39. The Nasdaq Composite Index was down 12.60 points, or 0.39 percent, at 3,232.40.

At its session high, the Dow climbed above 14,547, its highest ever, while the S&P was within one point of its closing record of 1,565.15 set in October 2007.

In company news, Red Hat Inc fell 4.5 percent to $48.50 after Jefferies cut its price target on the stock.

United Therapeutics Corp dropped 1.4 percent to $60.05 after it said the Food and Drug Administration had rejected its oral drug to treat hypertension for a second time.

Dell Inc said it received alternative proposals from Blackstone and billionaire investor Carl Icahn that could be superior to the $24.4 billion offer from founder Michael Dell and private equity fund Silver Lake Partners last month. Dell shares rose 3.1 percent to $14.58.

Merger and acquisition activity has been another of the reasons for the stellar performance of stocks so far this year.

University of Phoenix owner Apollo Group rose 9.8 percent to $18.71 after it reported a better-than-expected profit even as student sign-ups fell for the fourth straight quarter. The stock was the biggest percentage gainer on the S&P 500.

Best Buy Co Inc rose 2.1 percent to $23.26 after the company said that founder Richard Schulze would rejoin the retailer as chairman emeritus and add two of his former colleagues to the board. The news helped dispel rumors the largest investor in the world's largest consumer electronics chain was contemplating selling his stake in the company.

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