NEW YORK (Reuters) - Stocks slid on Thursday, with all three major indexes down more than 1 percent, as worries about rising global interest rates and inflation spooked equities investors.

News of a European Central Bank rate increase worsened concern about climbing rates, overshadowing news of the death of al Qaeda's leader in Iraq and a subsequent drop in crude oil prices.

Interest-rate-sensitive banking shares, like JPMorgan Chase & Co. <JPM.N> and Goldman Sachs & Co. <GS.N>, were especially hard hit. An S&P index of financial services shares <.GSPF> fell almost 1 percent.

"One worries that the (Federal Reserve) will continue to tighten and may overtighten, which could result in a hard landing," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. The Fed has raised rates 16 times since June 2004 in an effort to curb inflation.

The Dow Jones industrial average <.DJI> was down 119.36 points, or 1.09 percent, at 10,811.54. The Standard & Poor's 500 Index <.SPX> was down 14.99 points, or 1.19 percent, at 1,241.16. The Nasdaq Composite Index <.IXIC> was down 36.85 points, or 1.71 percent, at 2,114.95.

The New York Stock Exchange said it instituted trading limits after the New York Composite Index <.NYA> lost 160 points. The trading collars, which were created after the 1987 stock market crash, limit index arbitrage sell orders of stocks in the S&P 500.

In the banking sector, JPMorgan shares dropped 1.8 percent to $41.50, while Goldman Sachs shares lost 2.7 percent to $145.95.

Shares of energy companies like Exxon Mobil Corp. <XOM.N> and Chevron Corp. <CVX.N> fell with the drop in oil prices. The death of Abu Musab al-Zarqawi raised hopes for a let-up in attacks on Iraq's oil industry that have raised supply concerns. For more details, see <ID:nL08116964>

U.S. crude oil for July delivery <CLN6> tumbled $1.32 to $69.50 a barrel on the New York Mercantile Exchange.

Exxon Mobil, the top decliner in the S&P 500, was down 1.3 percent at $58.07, while Chevron was down 2.2 percent at $55.94.

The exit from stocks meant investors were seeking safety in U.S. Treasury debt and money market funds, traders said.

Declining shares beat advancers by about 4 to 1 on the NYSE and by about 5 to 1 on Nasdaq.

Pain inn the tech sector was reflected by the shares of Advanced Micro Devices Inc. <AMD.N>, the world's second-biggest chip maker behind Intel Corp. <INTC.O>. Advanced Micro Devices' shares lost 4.5 percent to $26.74 on the NYSE after UBS cut its price target on the stock to $33 from $39. <ID:nWNA7750>

Intel shares fell 1.3 percent to $17.16 on the Nasdaq.

On Wednesday, Citigroup cut its price target on AMD's stock and lowered its 2006 and 2007 earnings estimates on both AMD and Intel, citing among other factors, concerns about a potential microprocessor price war.

All three major stock indexes fell below their 200-day moving averages, a closely watched technical indicator of an instrument's resiliency. Major stock indexes broke below key technical support levels on Tuesday when the Dow fell below 11,000 for the first time in three months, which analysts said would trigger further declines in the market.

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By Caroline Valetkevitch

(Additional reporting by Joseph Giannone)

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