(Reuters) -U.S. stock index futures slumped on Friday as mounting concerns over risks and deteriorating credit quality triggered a selloff in regional banks, further weakening investor confidence strained by U.S.-China trade tensions.

The SPDR S&P regional banking ETF dropped 1.9% in premarket trading, extending losses after its steepest one-day drop in more than six months.

The decline was triggered by Zions Bancorporation disclosing a $50 million loss tied to two commercial and industrial loans, while Western Alliance said it had initiated a lawsuit alleging fraud by Cantor Group V, LLC.

The selloff rekindled concerns over lax lending standards in a sector already grappling with two auto bankruptcies, more than two years after the collapse of Silicon Valley Bank.

Zions shares fell 1.8%, while Western Alliance lost 2.8% before the bell.

Investment bank Jefferies, which has disclosed exposure to bankrupt auto parts supplier First Brands, dropped 2.5%, extending Thursday's 10.6% plunge.

Shares of some of the major U.S. banks also dropped. JPMorgan fell 1.1% and Morgan Stanley lost 0.9%. Bank of America and Citigroup declined 1.8% and 1.9%, respectively.

"All these could be isolated incidents, but there are increasing concerns about souring loans and bad credit," said Neil Wilson, strategist at Saxo Markets.

"Add worries about trade wars (last week's edition) and the ever-growing bubble risk from AI and you have a pretty nasty little cocktail of excuses to end the week in risk-off mode."

At 05:05 a.m. ET, Dow E-minis were down 379 points, or 0.82%, S&P 500 E-minis were down 73 points, or 1.09%, and Nasdaq 100 E-minis were down 316.25 points, or 1.27%.

Investors also awaited developments between Washington and Beijing after their trade war escalated last week.

U.S. President Donald Trump has threatened an additional 100% tariffs on China starting November 1, and other new trade measures against the world's second-largest economy following Chinese curbs on exports of rare earth minerals.

Optimism around AI and expectations of U.S. interest rate cuts have propelled Wall Street to record highs this year. However, AI-related tech stocks, which were among the biggest contributors to the rally, also slipped on Friday.

Robust earnings from big U.S. banks this week set an upbeat tone for the start of the third-quarter reporting season. But with equity valuations already elevated, investors are treading cautiously.

Among stocks, Eli Lilly fell 4.4% after Trump said he would bring down prices of weight-loss drugs.