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By Sweta Singh
June 29 (Reuters) - U.S. shares fell in early trading on Monday, with all Dow stocks opening down, after Greek bailout talks collapsed, intensifying fears that it could be the first country to exit the euro zone.
The S&P 500 and the Nasdaq Composite fell around 0.7 percent as markets around the world slumped on fears that other European countries would suffer if Greece defaults.
The European Central Bank froze funding to Greek banks, forcing Athens to shut banks for a week to keep them from collapsing.
"A week ago, it seemed very likely that we were close to having a resolution, and now all of a sudden we're waking up to capital controls?" said Leo Grohowski, who oversees about $194 billion in client assets as chief investment officer at BNY Mellon Wealth Management in New York.
"I'm not confident that today reflects all the bad news that could happen. Investors are really bumping up the odds that Greece will exit the euro," Grohowski said.
Trading was volatile, with the CBOE Volatility index spiking 16 percent to 16.27. While the so-called "fear index" remains below its historical average of 20, it is at its highest since early May.
S&P 500 index futures fell nearly 2 percent in premarket trading, though indexes pared their losses in early trading after a Greek government official said some banks would open on Thursday for the payment of pensions.
Greece faces default if it does not repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund on Tuesday.
Adding to the uncertainty, Chinese stocks closed sharply lower after a volatile day of trading despite surprise monetary easing by the central bank.
U.S. investors also await May data for pending home sales from the National Association of Realtors, which is expected to have dropped 1.2 percent after rising 3.4 percent in April. The data is expected to be released at 10 a.m. ET (1400 GMT).
The Federal Reserve Bank of Dallas will issue manufacturing outlook survey for June at 10:30 ET (1430 GMT).
Investors have been keeping a keen eye on data to see if the U.S. economy has recovered from a slow start at the beginning of the year. The Federal Reserve has said it will raise rates when it sees a sustained rebound in the economy.
A September interest rate hike is "very much in play" if the U.S. economy continues to strengthen, though the Federal Reserve could also wait until December to start tightening policy, New York Fed President William Dudley told the Financial Times in an interview.
At 9:56 a.m. EDT (XX GMT) the Dow Jones industrial average was down 123.75 points, or 0.69 percent, at 17,822.93, the S&P 500 was down 13.68 points, or 0.65 percent, at 2,087.81 and the Nasdaq Composite was down 39.16 points, or 0.77 percent, at 5,041.35.
Nine of the 10 major S&P 500 sectors were in the red with financials falling 1 percent.
Seres Therapeutics fell 18.8 percent to $41.80 after an 86 percent rise in its market debut on Friday.
Aratana Therapeutics rose 10.2 percent to $14.79 after the animal health drugmaker said its experimental appetite-stimulating drug was found effective in dogs in a pivotal study.
Insurer Assured Guaranty fell 8.7 percent to $25.02 on Monday after BTIG downgraded the stock on concerns over Puerto Rico's debts.
Insurer MBIA Inc shares fall 13.5 percent to $7.21 after BTIG downgrades stock to neutral to buy on concerns over Puerto Rico's debts.
Vitae Pharmaceuticals shares fell 27.4 percent to $11.03 after company said its drug to treat type 2 diabetes in overweight patients did not meet its main goal in a mid-stage study testing it as an add-on therapy.
Declining issues outnumbered advancers on the NYSE by 2,268 to 581. On the Nasdaq, 1,950 issues fell and 539 advanced.
The S&P 500 index showed one new 52-week high and 19 new lows, while the Nasdaq recorded 28 new highs and 57 new lows. (Additional reporting by Siddharth Cavale in Bengaluru; Editing by Saumyadeb Chakrabarty)