Jul. 15--Prices of bank shares plunged widely Monday and, in one case, trading of National City Corp. stock was halted temporarily on a day when fallout from the mortgage meltdown continued to infect local financial institutions.

Investors fled the sector amid fears that the lending crisis could snowball and create more bank collapses, such as Friday's seizure of IndyMac Bancorp Inc. Problems at mortgage giants Fannie Mae and Freddie Mac also ignited worry that there is more trouble ahead for lenders whose fortunes are tied to real estate.

The U.S. government over the weekend tried reassuring investors by announcing plans to help the two mortgage financiers, while federal banking regulators have stepped in to oversee California-based IndyMac.

The moves helped calm the overall stock market Monday, suggesting that investors did not fear that a full-blown crisis is imminent. The Dow Jones industrial average closed down only 0.4 percent, at 11,055.19.

But the message for bank stock investors was clear: Look out.

The KBW Bank Index, which consists of 24 stocks, lost 8.5 percent.

Seattle-based Washington Mutual Inc., which ranks fifth in the number of Chicago-area branches, got beat up, closing down 34.8 percent, at $3.23.

Shares of Cleveland-based National City, which ranks fourth in Chicago-area deposit market share since its 2007 purchase of Clarendon Hills-based MidAmerica Bank, fell more than 30 percent before the New York Stock Exchange halted trading for a time in late morning, pending a bank announcement.

"National City is experiencing no unusual depositor or creditor activity," the $150 billion-asset bank said in response to market rumors.

National City said it has more than $12 billion of excess short-term liquidity and, as a result of its recent $7 billion capital raise, is among the nation's best-capitalized big banks. It closed at $3.77, down 14.7 percent.

"Bank stocks are being punished today owing to the failure of IndyMac last Friday, as well as the precarious state of Fannie Mae and Freddie Mac," Lana Chan, an analyst with BMO Capital Markets, said in a report.

That doesn't mean worries about other financial stocks are unfounded. Many financial companies are scheduled to announce earnings results in the next two weeks.

"On the negative side, loss severity on housing-related problems appears to have worsened across the industry based on several preannouncements and results reported for the second quarter thus far," she said. And "we're concerned that market rumors, especially in this environment, can become self-fulfilling prophesies."

Nearly all locally headquartered banks did much worse than the market in general on Monday.

Chicago-based Corus Bankshares Inc. closed down 4.6 percent, at $3.34, after Ladenburg Thalmann analyst Richard Bove identified it as one of seven U.S.