* Dollar and gold rally; oil drops
* JPMorgan, BofA among biggest drags on S&P 500
* Indexes down: Dow 1.27 pct, S&P 1.54 pct, Nasdaq 2 pct (Updates to early afternoon)
By Yashaswini Swamynathan
June 27 (Reuters) - The selloff in equities, sparked by Britain's vote to exit the European Union, continued on Monday, setting the Dow and S&P 500 on course for their biggest two-day percentage drop in 10 months.
Banks continued to be among the worst hit. The S&P financial index was down nearly 2.48 percent by early afternoon as investors fret about London's future as the region's finance capital and fading chances of a U.S. Federal Reserve rate hike.
JPMorgan, down 3.2 percent, and Bank of America , down 5.4 percent, were among the biggest drags on the S&P 500.
European stocks continued to be pummeled and the sterling dropped more than 2 percent. Safe-haven gold held close to two-year highs, while the more risky crude oil was down 2.6 percent.
The dollar was set for its best two-day percentage gain since 2008, dealing a blow to U.S. companies that get a large portion of sales from overseas.
Britons moves to exit the EU confounded expectations and triggered a selloff on Friday that eroded $2.08 trillion in market capitalization globally - the biggest one-day loss ever, according to Standard & Poor's Dow Jones Indices, trumping the drop on Sept. 29, 2008.
U.S. Treasury Secretary Jack Lew, however, said the market impact from Brexit had been orderly so far and there were no signs of a financial crisis arising from the vote.
However, uncertainty surrounding when and on what terms Britain will end its membership is expected to keep markets volatile for the next few weeks.
"What I can say with certainty is uncertainty will remain," said Tina Byles Williams, chief executive officer of FIS Group.
At 12:30 p.m. ET (1630 GMT) the Dow Jones Industrial Average was down 221.37 points, or 1.27 percent, at 17,179.38.
The S&P 500 was down 31.41 points, or 1.54 percent, at 2,006.
The Nasdaq Composite was down 94.33 points, or 2 percent, at 4,613.65.
Eight of the 10 major S&P sectors were lower. Utilities and telecom services were the only ones to buck the trend.
Declining issues outnumbered advancing ones on the NYSE by 2,504 to 501. On the Nasdaq, 2,369 issues fell and 430 advanced.
The S&P 500 index showed 14 new 52-week highs and 26 new lows, while the Nasdaq recorded 12 new highs and 144 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty)