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UPDATE 5-U.S. stock markets closed on Monday as storm hobbles New York

* Stock, options markets shutting down Monday

* Plan for Tuesday still up in the air

* Banks prepare for storm, put key employees in hotels

* Closure because of fears of market integrity-sources

* Bond markets still open, closing at noon

NEW YORK, Oct 28 (Reuters) - U.S. stock and options markets will be closed on Monday, and possibly Tuesday, as regulators, exchanges and brokers worried about the integrity of markets in the face of Hurricane Sandy.

Market participants and regulators decided to shut the market because the storm will make it difficult to ensure the safety of employees, major exchanges said.

The decision to close stock and options markets came after regulators, exchanges, and dealers discussed the unknowns that would have been tested if the markets opened on Monday, three of the sources said.

For example, NYSE Euronext's New York Stock Exchange had planned to shut its physical trading floor, which would have meant operating as an all-electronic exchange for the first time.

Bond markets will remain open, but will close at noon, a trade group said.

The decision to shut down the stock markets came after Wall Street had prepared to open for business on Monday with limited staffing, booking hotel rooms for key employees and leaning on offices in other cities. The storm forced the New York mass transit system to shut down on Sunday evening, leaving tens of thousands of employees stuck at home.

Wall Street banks, including Goldman Sachs Group Inc and Citigroup Inc, activated their emergency plans, which many firms put in place after the Sept. 11, 2001, attacks. Banks were putting key staff, including some traders, in hotels and also are relying on others who live near the bank's offices.

It was not immediately clear if those plans had also changed.

Some offices in lower Manhattan's Financial District are in evacuation zones and most non-critical staff and employees who don't rely on high-speed systems, including some investment bankers, were asked to work from home.

(For a list of how Wall Street firms and exchanges are dealing with Hurricane Sandy, please click )

The storm is expected to slam into the U.S. East Coast on Monday night, bringing torrential rain, high wind, severe flooding and power outages. The rare ``super storm'' - created by an Arctic jet stream wrapping itself around a tropical storm - could be the biggest to hit the U.S. mainland, forecasters said.

The scramble on Wall Street started early as New York Governor Andrew Cuomo announced the subway, bus and rail system in the city would begin to close at 7 p.m. EDT on Sunday (2300 GMT).

About 8.5 million commuters use the Metropolitan Transit Authority's transit lines daily, meaning most Wall Street employees would be unable to get to work. New York City Mayor Michael Bloomberg also closed public schools and ordered an evacuation of 375,000 people in coastal areas, including downtown offices of banks such as Citigroup.

All of the U.S. exchanges, as well as major broker-dealers, and regulators were involved in the decision to close the markets, according to several executives at exchanges and financial firms.

The U.S. markets have seen three high-profile snafus this year, beginning with the failed IPO of BATS Global Markets, the No. 3 U.S. equities exchange, on its own exchange; Facebook Inc's botched markets debut on Nasdaq's exchange; and a software glitch that cost trading firm Knight Capital well over $400 million, nearly forcing it into bankruptcy.

TRANSIT SHUT DOWN

The major exchanges and most big trading firms have alternate trading facilities if downtown Manhattan is inaccessible, but the storm's wide path may affect a number of sites in the New York metropolitan area. Authorities have warned of possible widespread power outages that could last for days.

Wall Street was spared the worst of Hurricane Irene in August last year. Officials had feared Hurricane Irene would flood lower Manhattan and cripple business in the world's financial capital, but the flooding was minor and there were no major disruptions at the exchanges.

The Securities Industry and Financial Markets Association said earlier on Sunday it is recommending an early close of noon EDT on Monday for the trading of U.S. dollar-denominated, fixed-income securities. It said its member firms should decide for themselves whether their fixed-income departments remain open for trading.

The foreign exchange market's activity generally follows the fixed income markets.

The New York Federal Reserve has calls scheduled for early Monday morning with dealers to see what each dealer is doing to cope with the storm, and will modify its market activities accordingly.

In Washington, the Commerce Department said it would post its report on personal income and spending for September on its website at 8:30 a.m. as scheduled, even though the federal government was closed.

The Federal Reserve said it would postpone its regularly scheduled releases, including its weekly report on selected interest rates and daily commercial paper data. The Fed said it would release the data when federal offices in the Washington area reopened.

Hurricane Sandy also led to some events being canceled or postponed. Citigroup Prime Brokerage postponed a hedge fund event that had been scheduled for Tuesday.