US STOCKS-Nasdaq dives 3%, S&P 500 on course to confirm a correction

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* Kohl's surges as Sycamore, Acacia show takeover interest

* Energy, financials among top S&P 500 sectoral losers

* Indexes drop: Dow 2.17%, S&P 2.73%, Nasdaq 3.2% (Updates to open)

By Devik Jain and Bansari Mayur Kamdar

Jan 24 (Reuters) - U.S. stock indexes dropped on Monday, with the S&P 500 on course to confirm a correction as the prospect of a Russian attack on Ukraine posed as a double whammy for investors already worried about aggressive policy tightening by the Federal Reserve.

A correction is confirmed when an index closes 10% or more lower than its record closing level. The S&P 500 index is now down 10.9% from its record closing high on Jan 3.

All the 11 major S&P sectors declined in early trading, with nine of them falling more than 2% each.

The economically sensitive small-cap Russell 2000 index slid 2.8%. The index dropped as much as 20.3% from its Nov. 8 peak, putting it on course to confirm a bear market.

The U.S. State Department announced on Sunday it was ordering diplomats' family members to leave Ukraine, as U.S. President Joe Biden weighed options for boosting America's military assets in Eastern Europe to counter a buildup of Russian troops.

The order was one of the clearest signs yet that American officials are bracing for an aggressive Russian move in the region.

A widely watched gauge of investor anxiety in U.S. markets - the CBOE Volatility index - was last trading at its highest level since January 2021.

"Ukraine clearly is a concern that's weighing on the markets today," said Darren Schuringa, chief executive officer of ASYMmetric ETFs in New York. "This will continue to weigh on the markets for the foreseeable future until there's some type of resolution and more clarity as to what the outcome looks like."

The Fed's policy meeting concludes on Wednesday and the market will pay close attention to how worried the Fed is over surging inflation and how aggressive the U.S. central bank will be in trying to contain it.

Fed funds futures traders are fully pricing in a 25 basis point hike in March, in addition to three more rate increases by year-end.

Stocks are off to a rough start in 2022, with the Nasdaq index now down 16% from its November closing peak as prospects of faster policy tightening steps spurred a rally in Treasury yields that dealt a sharp blow to Wall Street's growth names.

At 10:20 a.m. ET, the Dow Jones Industrial Average was down 744.95 points, or 2.17%, at 33,520.42, the S&P 500 was down 120.17 points, or 2.73%, at 4,277.77, and the Nasdaq Composite was down 439.17 points, or 3.19%, at 13,329.75.

Tesla Inc slid 7.7% to lead declines among the mega-cap technology stocks.

"For many tech companies, multiples and valuations are certainly high in a lot of instances and so if you don't deliver the earnings to justify the valuation, there's room for continued and further corrections," Schuringa said.

Kohl's Corp surged 31.6% after Reuters reported private equity firm Sycamore Partners is preparing to make a bid for the U.S. department store days after a consortium backed by activist investment firm Starboard Value proposed a buyout.

Declining issues outnumbered advancers for a 12.49-to-1 ratio on the NYSE and for a 7.33-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 27 new lows, while the Nasdaq recorded two new highs and 1,146 new lows. (Reporting by Devik Jain and Bansari Mayur Kamdar in Bengaluru; Editing by Maju Samuel)