* Indexes down: Dow 1.56%, S&P 500 1.52%, Nasdaq 1.78%

* WTI crude settles up 9.7%, Brent settles up 9.2%

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

Strait of Hormuz shut

* Oil surges as tankers set ablaze in Middle East

* Big banks fall on rising credit quality concerns

(Updates story to edit the headline)

By Stephen Culp and Johann M Cherian

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

Thursday, as Iranian strikes on two oil tankers sent crude

prices surging toward $100 per barrel, further exacerbating

inflation fears and sending investors fleeing equity markets.

All three major U.S. stock indexes slid more than 1.5% in a

broad selloff, with everything but energy and some

defensive stocks suffering steep percentage losses. The S&P 500

notched its biggest three-day percentage drop in a month.

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 crude futures settled up 9.7% on the

day, while Brent settled up 9.2%, touching $100 per

barrel.

U.S. President Donald Trump's 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.

"There's a realization that a resolution to the Middle East

conflict is being pushed further out," said Ryan Detrick, chief

market strategist at Carson Group in Omaha. "It's a sell first,

ask questions later type of mentality. There hasn't been safe

sector outside of energy. "

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.

"Under the surface of soaring crude prices is the

realization that the likelihood of Fed cuts later this year is

quickly dwindling," Detrick added.

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 slid 4.1% and 1.6%, 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 739.42 points,

or 1.56%, to 46,677.85, the S&P 500 lost 103.22 points,

or 1.52%, to 6,672.58 and the Nasdaq Composite lost

404.15 points, or 1.78%, to 22,311.98.

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

biggest gainer, rising 1.0%, while industrials sliding

2.5%, notched the steepest percentage loss.

Dating app operator Bumble jumped 34.2% after its

fourth-quarter revenue guidance came in above estimates.

Discount retailer Dollar General ( DG ) slid 6.1% following its

disappointing annual comparable sales forecast.

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 4.9%.

Chemical companies LyondellBasell and Dow

advanced 10.3% and 9.3%, respectively, 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 is expected,

including consumer sentiment, durable goods, job openings/labor

turnover, and the broad-ranging personal consumption

expenditures report.

Declining issues outnumbered advancers by a 4.18-to-1 ratio

on the NYSE. There were 117 new highs and 198 new lows on the

NYSE.

On the Nasdaq, 1,100 stocks rose and 3,600 fell as declining

issues outnumbered advancers by a 3.27-to-1 ratio.

The S&P 500 posted 17 new 52-week highs and 25 new lows

while the Nasdaq Composite recorded 33 new highs and 172 new

lows.

Volume on U.S. exchanges was 19.96 billion shares, compared

with the 20.05 billion average for the full session over the

last 20 trading days.