US STOCKS-Wall Street falls as tech outweighs banks

                                
 * Telecoms tumble after downgrades
                                
 * Banks rise ahead of stress test results
                                
 * U.S. initial jobless claims unexpectedly drop
                                
 * Retailers post monthly sales for April
                                
 * Dow off 0.5 pct, S&P off 0.3 pct, Nasdaq off 1.5 pct
  (Adds Wal-Mart, economic data)
                                
 NEW YORK, May 7 (Reuters) - U.S. stocks fell on Thursday as
analyst downgrades in the telecom sector and a move out of
technology stocks outweighed hopes that bank stress tests
results would show most banks are healthier than thought.
                                
 Telecom companies Verizon <VZ.N> and AT&T <T.N> were among
the top drags on the blue-chip Dow Jones industrials index
after JP Morgan downgraded both companies, citing long-term
challenges with wireline and wireless segments. For details,
[ID:nWNAB5604]
                                
 Tech stocks fell despite stronger-than-expected results
from tech bellwether Cisco Systems <CSCO.O> after the close on
Wednesday. Cisco Chief Executive John Chambers said his
customers were seeing more stability, adding to hopes that
business conditions would soon recover. [ID:nN06332767]
                                
 Cisco fell 2.8 percent to $19.07 and was among the top
drags on the Nasdaq, along with large-cap techs Apple <AAPL.O>
and Qualcomm <QCOM.O>, each down nearly 3 percent.
                                
 "The techs are under a little bit of pressure," said Peter
Kenny, managing director at Knight Equity Markets in Jersey
City, New Jersey.
                                
 "There is a lot of rotation going on and what's really
driving the market -- and has been in fits and starts -- has
been the financials, and I think they are very much back in
vogue."
                                
 The Dow Jones industrial average <.DJI> dropped 41.26
points, or 0.48 percent, to 8,471.02. The Standard & Poor's 500
Index <.SPX> shed 2.42 points, or 0.26 percent, to 917.11. The
Nasdaq Composite Index <.IXIC> fell 26.08 points, or 1.48
percent, to 1,733.02.
                                
 The S&P Telecom Services index <.GSPL> slid 3 percent while
the PHLX Semiconductor index <.SOXX> dropped 5.2 percent.
                                
 The results of government stress tests on the ability of
the 19 largest banks to weather a deep recession will be
released at 5 p.m. and are expected to show about half of the
banks need more capital.  [ID:nN07333426]
                                
 Leaked test results on Wednesday gave investors some
clarity over how well the industry will cope with perhaps the
most severe recession since World War II, pushing the S&P 500
index to its best close since Jan. 6. [ID:nL776802]
                                
 Financial stocks were among the bright spots on Thursday,
as the KBW Bank index <.BKX> rose 1.2 percent.
                                
 Bank of America Corp <BAC.N>, upgraded by two analysts,
rose more than 15 percent to $14.63 and was the top boost to
the Dow.
                                
 Several retailers reported better-than-expected monthly
sales figures, offering fresh evidence that consumers'
willingness to spend is increasing. [ID:nN07542905]
                                
 Wal-Mart Stores Inc <WMT.N> , the world's largest retailer
reported April sales that topped analysts' forecasts. The
shares climbed 1.2 percent to $50.08. [ID:nN07455499]
                                
 Despite the encouraging monthly sales results, the S&P
Retail index <.RLX> shed 1.1 percent.
                                
 Government data showed the number of workers filing new
claims for jobless aid unexpectedly fell last week to its
lowest reading since late January, while U.S. productivity grew
at a slightly higher-than-expected rate as firms cut back
sharply on employment to protect profits. [ID:nN07342857]
                                
 General Motors Corp <GM.N> shares slid 3 percent to $1.61
after the beleaguered automaker reported first-quarter results
and said it still wants to avoid bankruptcy. [ID:nN06340190]
                                
 Since hitting a 12-year closing low in March, the S&P has
surged 35 percent, driven by optimism about the financial
system's condition and hopes the recession may be waning.
 (Reporting by Chuck Mikolajczak; editing by Padraic Cassidy)