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US STOCKS-Wall St drops after three-day surge as virus threat intensifies

By Uday Sampath Kumar and Medha Singh

* U.S. House debating $2 trillion aid bill

* Bank stocks tumble but set for best week since 2009

* Boeing set to snap four-day stellar rally

* Indexes tumble: Dow 4.06%, S&P 3.68%, Nasdaq 3.57% (For a live blog on the U.S. stock market, click LIVE/ or type LIVE/ in a news window)

By Uday Sampath Kumar and Medha Singh

March 27 (Reuters) - Wall Street fell more than 3% on Friday, following the S&P 500 and the Dow's best three-day run in nearly a century, as fears about the economic damage from the coronavirus pandemic returned to the forefront.

The United States on Thursday surpassed China as the country with the most number of coronavirus cases and is expected to become the epicenter of the outbreak.

"We're not out of the woods yet on the health or economic crisis," said Eddie Perkin, chief equity investment officer at Eaton Vance in Boston.

"It would seem odd to me if the markets fully stabilize before we get more clarity on the health front."

Unprecedented stimulus measures by the Federal Reserve and the White House have set the S&P 500 for its best week in over a decade, but it is still down 14% in March and on course for its worst month since the height of the financial crisis.

The Dow Jones, briefly establishing a bull market with its gains on Thursday, is on course for its biggest weekly gain since 1938, largely helped by a stunning four-day rally for Boeing Co.

But with growing fears of a deep global recession, traders expect more wild swings in financial markets until there are signs of new virus cases peaking and sweeping restrictions placed on entire countries being lifted.

A record 3 million surge in U.S. weekly jobless claims offered the first glimpse of the extent of the economic hit from the outbreak, which has forced several companies to shutter operations and announce layoffs.

"Big questions are starting to be answered, like how bad is the spread of infections (and) how bad is the economic damage," said Neil Wilson, chief market analyst for Markets.com in London.

"That is a recovery narrative, not panic, but if a recovery is not as swift as hoped, equity markets will suffer another hit."

The U.S. House of Representatives is widely expected to clear a $2 trillion bill, aimed at flooding the country with cash to support businesses and families affected by the outbreak, after the Senate passed the proposal on Thursday.

At 10:29 a.m. ET the Dow Jones Industrial Average was down 916.19 points, or 4.06%, at 21,635.98, the S&P 500 was down 96.72 points, or 3.68%, at 2,533.35 and the Nasdaq Composite was down 278.50 points, or 3.57%, at 7,519.04.

Delta Airlines, United Airlines and American Airlines fell between 6% and 9% as U.S. Treasury Secretary Steve Mnuchin said the aid designated for airlines in the package was not a bailout and that taxpayers would need to be compensated.

Boeing shed 11% after gaining as much as 90% this week, as Mnuchin said the planemaker had no intention of participating in the package.

The banking index fell 5.4%, tracking U.S. Treasury yields, while oil majors Exxon Mobil and Chevron Corp fell about 6%, tracking a drop in Brent crude prices.

Declining issues outnumbered advancers more than 8-to-1 on the NYSE and 5-to-1 on the Nasdaq.

The S&P index recorded no new 52-week high and one new lows, while the Nasdaq recorded three new highs and 15 new lows. (Reporting by Uday Sampath and Medha Singh in Bengaluru; Editing by Sagarika Jaisinghani, Saumyadeb Chakrabarty and Anil D'Silva)