* Anxiety about bank rescue plan hurts sentiment
* U.S. service sector data offers some support
* Dow off 1.5 pct, S&P off 0.8 pct, Nasdaq off a fraction
* Cisco's after-the-bell outlook hits futures
* For up-to-the-minute market news, click []
(Updates with Cisco dropping late, adds volume in last two
paragraphs)
By Ellis Mnyandu
NEW YORK, Feb 4 (Reuters) - U.S. stocks fell on Wednesday
as a glum profit forecast from Kraft Foods <KFT.N> signaled
consumers are skimping even on the basics and investors worried
that government efforts to rescue banks could wipe out their
shareholders.
Even so, a report showing that the vast service sector
shrank less than expected in January spurred technology gains,
helping the Nasdaq finish near break-even.
But that was before Cisco Systems Inc <CSCO.O> , the
network equipment maker that is a tech bellwether, forecast a
slide of as much as 20 percent in its current quarter revenue,
hitting other tech shares after the bell.
In the regular session shares of Kraft, the top North
American food maker, tumbled more than 9 percent and were the
top drag on the Dow, followed by Walt Disney Co <DIS.N> ,which
fell nearly 8 percent a day after reporting a slide in
quarterly profit.
Costco Wholesale Corp <COST.O> dropped almost 7 percent
after the largest U.S. warehouse club warned quarterly earnings
would fall short of Wall Street's forecasts.
"Consumer spending is the lion's share of the economy,"
said Anthony Conroy, head trader for BNY ConvergEx in New York.
"When consumers stop spending, the economy comes to a halt."
The Dow Jones industrial average <> fell 121.70 points,
or 1.51 percent, to 7,956.66. The Standard & Poor's 500 Index
<.SPX> shed 6.28 points, or 0.75 percent, to 832.23. The Nasdaq
Composite Index <> dipped 1.25 points, or 0.08 percent, to
1,515.05.
Unease about the deteriorating earnings picture and
uncertainty about the banking sector are major hurdles in the
market's attempt to recover from an 11-year low hit on Nov. 21.
The S&P 500 is up 4 percent since then, but is down about 8
percent since the start of 2009.
Shares of Kraft, whose products include Oreo cookies and
Maxwell House coffee, tumbled 9.2 percent to $26.11 on the New
York Stock Exchange, while Disney plunged 7.9 percent to
$19.00. Costco shed 6.8 percent to $42.98 on Nasdaq.
Shares of Bank of America plunged 11.3 percent to $4.70,
capping a fifth straight day of declines and touching a 19-year
low during the session, as investors fretted about the
uncertainty of how a government plan to relieve banks of
money-losing assets would work.
Of particular concern is that the plan could wipe out
current stockholders, traders said. The Obama administration is
due to make an announcement on its bank rescue plan next week.
"The market wants to see some kind of a bank plan that
makes sense," said Angel Mata, managing director of listed
equity trading at Stifel Nicolaus Capital Markets in Baltimore.
Wells Fargo & Co <WFC.N> declined 4.1 percent to $17.45.
The KBW Bank index <.KBX> fell 1.5 percent, while the S&P
financial index <.GSPF> shed about 1 percent.
On the bright side, data from the Institute for Supply
Management showed the service sector, which represents about 80
percent of U.S. economic activity, shrank less than expected in
January, welcome news for investors.
The data spurred buying of shares of big-cap technology
companies, including Microsoft Corp <MSFT.O>, which posted a
third straight day of gains, rising nearly 1 percent to $18.63
on Nasdaq. Intel Corp <INTC.O> climbed 2.1 percent to $13.88 on
Nasdaq.
But after-the-bell, Cisco gave investors a more sober view,
with a forecast for a drop of 15 percent to 20 percent in its
current quarter revenue as the recession deepens. The stock
slid 4 percent to $15.20 after the bell, from a Nasdaq close of
$15.84.
The Cisco news caused S&P 500 and Nasdaq stock index
futures to sag in after-the-bell trade, suggesting some
turbulence could hit the technology sector on Thursday. The
sector has rallied strongly since the start of this month.
Volume was moderate on the New York Stock Exchange, where
about 1.39 billion shares changed hands, below last year's
estimated daily average volume of 1.49 billion shares, while on
the Nasdaq, about 2.27 billion shares traded, just shy of last
year's daily average of 2.28 billion.
Decliners outnumbered advancers on the NYSE by a ratio of
about 9 to 7, while on the Nasdaq, about 3 stocks rose for
every 2 that fell.
