* U.S. banks follow European peers lower
* Cognizant falls after weak forecast
* Indexes down: Dow 1.1 pct, S&P 1.4 pct, Nasdaq 1.8 pct (Updates to late afternoon)
By Caroline Valetkevitch
Feb 8 (Reuters) - U.S. stocks dropped on Monday as concern over global growth hit banks and other economically sensitive shares, but a late rally in energy shares left the market well above its lows of the day.
European banks led a global selloff in financial shares as signs of stress in the sector mounted.
Uncertainty over whether the U.S. Federal Reserve will raise rates this year also dragged down U.S. bank stocks, pushing the S&P financial index down 2.6 percent. It is now off 14.6 percent for the year, making it the worst-performing of the 10 major S&P sectors.
"Investors' attitudes seem to be worsening relative to the likelihood of a global recession. I think that's what financials are reflecting - that their net interest margins are going to be further compressed under collapsing bond yields," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
The yield on the 10-year Treasury note fell to a one-year low of 1.735 percent.
Facebook, Amazon and other stocks that had lent strength to the market last year extended Friday's decline. Fund managers say that last year's outsized gains among some Internet stocks - Facebook, for instance, jumped 37 percent, while Netflix soared 144 percent - make them the first choice to sell now.
Sharp selling in the beaten-down energy space reversed late in the session, leaving the S&P 500 well off its lows of the day.
But Chesapeake Energy ended down 33.3 percent at $2.04 after sources told Reuters that the natgas company had tapped existing adviser Kirkland & Ellis to explore restructuring options. Chesapeake said it has no plans to pursue a bankruptcy.
The Dow Jones industrial average closed down 177.92 points, or 1.1 percent, to 16,027.05, the S&P 500 lost 26.61 points, or 1.42 percent, to 1,853.44 and the Nasdaq Composite dropped 79.39 points, or 1.82 percent, to 4,283.75.
S&P 500 materials also fell sharply, ending the session down 2.7 percent.
Falling oil prices along with concern over a worsening global growth outlook have caused a sharp selloff in stocks this year. The S&P 500 is down 9.3 percent.
Adding to recent woes for the technology sector, Cognizant dropped 7.7 percent to $54.05 after the IT services provider issued a weak sales forecast.
Amazon fell 2.8 percent while Facebook dropped 4.2 percent.
Volume was heavy. About 10.6 billion shares changed hands on U.S. exchanges, above the 9.4 billion daily average for the past 20 trading days, according to Thomson Reuters data.
Declining issues outnumbered advancing ones on the NYSE by 2,484 to 618, for a 4.02-to-1 ratio on the downside; on the Nasdaq, 2,029 issues fell and 804 advanced for a 2.52-to-1 ratio favoring decliners.
The S&P 500 posted 7 new 52-week highs and 97 new lows; the Nasdaq recorded 4 new highs and 495 new lows. (Additional reporting by Abhiram Nandakumar in Bengaluru and Marcus E. Howard in New York; Editing by Savio D'Souza Editing by Nick Zieminski)