ABC report on Flynn rocks Wall Street

By Sruthi Shankar

(Reuters) - U.S. stocks sank on Friday after ABC News reported former national security adviser Michael Flynn was prepared to tell investigators that Donald Trump directed him to make contact with Russians during last year's presidential elections.

The report added to a volatile day of political news which saw shares fall initially in New York on concerns over the passage of Trump's tax bill through the Senate.

Reuters has not verified the ABC News report, which cited a Flynn confidant. Flynn pleaded guilty after being charged for lying to the FBI about his contacts with Russia's ambassador to the United States.

"If it turns out to be an accurate report, and ultimately Flynn implicates Trump as having colluded with Russia to rig the election, obviously that creates a lot of turmoil," said Randy Frederick, vice president of trading and derivatives for brokerage Charles Schwab.

"But it's too early to say."

Stock movements in recent days have mirrored the news out of Washington, with a surprise endorsement for the tax plan from Republican Senator John McCain helping the Dow break above the 24,000 mark for the first time on Thursday.

At 11:28 a.m. ET (1628 GMT), the Dow Jones Industrial Average was down 223.55 points, or 0.92 percent, at 24,048.8.

The S&P 500 was down 1.1 percent at 2,618.85 and the Nasdaq Composite 1.45 percent at 6,774.44.

"The market is reacting to this ABC report that Trump can be incriminated by Flynn's testimony," said Mizuho strategist Antoine Bouvet.

"If it is true, then the market should be pricing a lower likelihood of Trump's economic agenda being implemented. But it's hard to tell how much substance there is behind it at this stage, at best its a distraction from the tax reforms."

(Reporting by Sruthi Shankar, additional reporting by Rama Venkat Raman in Bengaluru; Editing by Sriraj Kalluvila)