(Updates to mid-afternoon trading)

* Indexes down: Dow 1.22%, S&P 500 1.12%, Nasdaq 1.41%

* Iran's new Supreme Leader Mojtaba Khamenei vows to keep

Strait of Hormuz shut

* Oil surges as tankers set ablaze in Middle East

* Trump explores possible waiver of Jones Act to ease oil

cost pressures

* Big banks fall on rising credit quality concerns

By Stephen Culp and Johann M Cherian

NEW YORK, March 12 (Reuters) - U.S. stocks tumbled on

Thursday as Iranian strikes on two oil tankers sent crude prices

surging toward $100 per barrel, exacerbating already heightened

inflation fears and sending investors fleeing equity markets.

All three major U.S. indexes slid more than 1% in a broad

selloff, with everything but energy and some defensive

stocks suffering steep percentage losses.

Iran's Supreme Leader Ayatollah Mojtaba Khamenei vowed to keep

the crucial Strait of Hormuz shut, and the International Energy

Agency (IEA) warned the war on Iran was creating the

largest-ever oil supply disruption, feeding fears of mounting

inflation pressures.

Front month WTI and Brent crude futures were last

up about 8%, with Brent briefly touching $100 per barrel.

The Trump administration has told U.S. oil companies and

shippers to prepare for a possible waiver of the century-old

Jones Act, which governs domestic shipping, in an effort to

mitigate rising fuel prices, according to sources familiar with

the discussion.

"It seems like one of those 'sell everything' type of days,"

said Ross Mayfield, investment strategy analyst at Baird in

Louisville, Kentucky. "This has been a market where, even amid

all the weakness, the pop in oil prices and the volatility, we

haven't had many big down days like this, in terms of breadth."

"There's a sense that things are worse than investors had

hoped for, and there's no white knight riding in." Mayfield

added.

The U.S. Federal Reserve convenes on March 17, and while

recent inflation data suggest price growth is under control, the

13-day-old war on Iran and the resulting spike is crude prices

have yet to filter through the data. While the central bank is

widely expected to leave its key interest rate unchanged, its

updated summary of economic projections will be scrutinized for

adjusted inflation estimates.

In light of recent credit quality concerns, Swiss private equity

firm Partners Group warned private credit default rates could

double in the next few years.

Morgan Stanley ( MS ) limited redemptions at one of its private

credit funds, while JPMorgan Chase ( JPM ) reduced the value of

some loans to private credit funds on Thursday. Their shares

were off 4.6% and 2.0%, respectively.

Federal Reserve Vice Chair for Supervision Michelle Bowman

outlined regulatory changes that would relax requirements for

the amount of cash banks must set aside for potential losses, in

a move seen as a victory for Wall Street lenders.

The Dow Jones Industrial Average fell 581.01 points,

or 1.22%, to 46,840.89, the S&P 500 lost 78.56 points, or

1.12%, to 6,699.68 and the Nasdaq Composite lost 320.37

points, or 1.41%, to 22,395.77.

Among the 11 major sectors of the S&P 500, energy was the

biggest gainer, while industrials notched the steepest

percentage loss.

Dating app operator Bumble jumped 33.6% on Thursday

after reporting fourth-quarter revenue above estimates.

Discount retailer Dollar General ( DG ) fell 5.9% after

forecasting annual comparable sales below estimates.

Agricultural fertilizer firms, which also rely on shipments

through the Strait of Hormuz, advanced on surging prices. The

S&P Fertilizer and Agricultural Chemicals index

jumped 4.7%.

Chemical companies LyondellBasell and Dow rose

over 8% following a Citigroup ( C ) upgrade on new export

opportunities arising from supply chain disruptions in the

Middle East.

On Friday, a raft of economic indicators are expected,

including consumer sentiment, durable goods, job openings/labor

turnover, and the broad-ranging personal consumption

expenditures report.

Declining issues outnumbered advancers by a 3.19-to-1 ratio

on the NYSE. There were 107 new highs and 166 new lows on the

NYSE.

On the Nasdaq, 1,226 stocks rose and 3,400 fell as declining

issues outnumbered advancers by a 2.77-to-1 ratio.

The S&P 500 posted 17 new 52-week highs and 22 new lows

while the Nasdaq Composite recorded 33 new highs and 147 new

lows.