(Reuters) - Stocks fell in a volatile session on Monday on concerns the euro zone's sovereign debt crisis could undermine a global economic recovery, but a tech deal limited losses on the Nasdaq index.

The market pared early drops of more than 1 percent spawned by worries Moody's Investors Service would downgrade French banks and by the lack of a solution to Greece's debt problem.

Fears Europe's credit crisis would spill over into the U.S. banking system have been pressuring Wall Street for months, sending shares of some major banks to at least two-year lows.

Sectors tied to economic growth prospects were among the hardest hit Monday, with the S&P material index .GSPM down 1 percent and the energy index .GSPE off 0.7 percent.

France's top banks are bracing themselves for a likely downgrade from Moody's, sources close to the situation said, further complicating their efforts to assure investors they are riding out the tensions in fundingmarkets.

A weekend meeting of finance ministers from the Group of Seven industrialized nations failed to come up with fresh proposals for boosting global growth.

"U.S. investors are faced with a barrage of bad news from European markets," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.

Still, he added, "after significant early weakness, investors seem a little less concerned."

The Dow Jones industrial average .DJI was down 101.72 points, or 0.93 percent, at 10,890.41. The Standard & Poor's 500 Index .SPX was down 9.07 points, or 0.79 percent, at 1,145.16. The Nasdaq Composite Index .IXIC was down 5.06 points, or 0.21 percent, at 2,462.93.

About 80 percent of companies traded on the New York Stock Exchange were lower.

Losses were limited on the Nasdaq by NetLogic Microsystems Inc (NETL.O), which jumped 50 percent to $47.88 after wireless chipmaker Broadcom Corp (BRCM.O) agreed to buy the company for about $3.7 billion.

Broadcom fell 2.2 percent to $32.71 while the semiconductor index .SOX climbed 2.2 percent.

The merger "is a sign that many stocks are undervalued from a historical perspective," said Joseph Cangemi, managing director at BNY ConvergEx Group in New York.

Economists last month slashed their growth forecasts for the United States, a survey showed on Monday, with most seeing at least even odds that the Federal Reserve will buy new bonds to help stimulate the recovery.

McGraw-Hill Companies Inc (MHP.N) rose 1.8 percent to $39.40 after it said it would split into two public companies, one focused on global markets and the other on education.

(By Ryan Vlastelica; Editing by Kenneth Barry)

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