US stocks lost more than 1 percent on Friday after a Republican proposal for averting the "fiscal cliff" failed to pass, diminishing hopes that a deal would be reached soon in Washington. Trading is expected to be volatile as investors view a fiscal agreement between the White House and Republicans before the end of the year as increasingly unlikely. Lower volume heading into next week's Christmas holiday could increase volatility. The CBOE Volatility Index, or VIX, was up 10 percent.

Citigroup Inc sank 2.7 percent to $39.10, while Bank of America slid 2.5 percent to $11.22. The KBW Banks index lost 1.7 percent. The Dow Jones industrial average dropped 185.38 points, or 1.39 percent, to 13,126.34. The Standard & Poor's 500 Index tumbled 20.88 points, or 1.45 percent, to 1,422.81. The Nasdaq Composite Index lost 46.64 points, or 1.53 percent, to 3,003.74.

Copyright Reuters, 2012