US STOCKS-Markets close lower for year, Cisco down late

                                

                                
 * Fed's downgrade of economic outlook weighs on shares
                                
 * Chinese investment and factory output slows
                                
 * Tech bellwether Cisco down ahead of results
                                
 * Stocks off: Dow 2.5 pct, S&P 2.8 pct, Nasdaq 3 pct
                                
 * For up-to-the-minute market news see [STXNEWS/US]
 (Updates with comments from Cisco CEO John Chambers, stock
index futures falling in paragraphs 11-12)
                                
 By Ryan Vlastelica
                                
 NEW YORK, Aug 11 (Reuters) - U.S. stocks erased the year's
gains in the broadest selloff in a month-and-a-half on
Wednesday as fears of sustained global economic stagnation
caused investors to flee to safer assets.
                                
 All three major indexes posted their worst percentage drop
since July 16 following the Federal Reserve's bleaker
assessment of the economy on Tuesday. The U.S. central bank
said it would take steps to hold down borrowing costs. However,
some traders questioned how effective these measures would be.
                                
 "Adding liquidity to the system by saying they would buy
Treasuries isn't helping the average man on the street," said
Robert Pavlik, chief market strategist at Banyan Partners LLC
in New York. "This isn't going to be creating jobs or helping
the housing market."
                                
 There were more than five times as many declining stocks as
advancing ones on the New York Stock Exchange while on the
Nasdaq, more than eight stocks fell for each that rose.
                                
 Only five of the S&P's 500 stocks ended higher. All 10
major S&P sectors were down more than 1 percent, led lower by
the industrials <.GSPI>, down 3.9 percent, and the financials
<.GSPF>, off 3.6 percent. Diversified manufacturer 3M Co
<MMM.N> was the biggest drag on the Dow, off 3.5 percent.
                                
 A report on soft factory data in China added to the worries
about a global slowdown, pressuring equities and commodities
and lifting the prices of Treasuries. The two-year note's yield
fell to an all-time low overnight. For details, see
[ID:nN09275781] [ID:nTOE67A01A]
                                
 "Some market participants had hoped Asia would bail us out
of our dilemma," said Len Blum, managing partner at Westwood
Capital LLC in New York. "If China isn't growing fast, then we
can't hitch our wagon to that star, which will hurt commodities
and stocks while people flee to the dollar."
                                
 The Dow Jones industrial average <.DJI> was down 265.42
points, or 2.49 percent, at 10,378.83. The Standard & Poor's
500 Index <.SPX> was down 31.59 points, or 2.82 percent, at
1,089.47. The Nasdaq Composite Index <.IXIC> was down 68.54
points, or 3.01 percent, at 2,208.63.
                                
 The Nasdaq was down 2.7 percent for the year, while the S&P
500 was down 2.3 percent and the Dow was down 0.5 percent. The
CBOE Volatility Index <.VIX> surged 13 percent, suggesting
investors see further choppiness in the market.
                                
 Among the Nasdaq's top decliners was Cisco Systems Inc
<CSCO.O>, which fell 2 percent to $23.73 during the session,
then slumped a further 7.9 percent to $21.85 in extended
trading after the company reported weaker-than-expected
revenues.
                                
 John Chambers, the chief executive, said that while supply
chain constraints were improving, challenges remained. He also
affirmed the company's long-term annual revenue growth target
of 12 percent to 17 percent. [ID:nN11174722].
                                
Pressured by Cisco, the stock market selloff was expected to
continue into Thursday's session. S&P 500 futures <SPc1> were
down 0.8 percent and Nasdaq futures <NDc1> fell 1.2 percent.
                                
 Semiconductor company Cree Inc <CREE.O> fell 13 percent to
$59.81 a day after it gave a revenue outlook for the current
quarter below analyst estimates.
                                
 Macy's Inc <M.N> was a rare bit of positive news, rising
5.9 percent to $20.52 after it reported second-quarter earnings
that beat expectations and forecast strong full-year same-store
sales growth. [ID:nN11200899]
                                
 Dow component Walt Disney Co <DIS.N> fell 3 percent to
$34.22 despite reporting better-than-expected third-quarter
earnings and revenue late on Tuesday. [ID:nN10168857]
                                
 After briefly piercing its July upward trendline on
Tuesday, the S&P 500 traded below it during Wednesday's session
and opened the door to testing the July 30 low of 1,088, which
provided support.
                                
 A breach of that 1,088 level takes near-term support down
to 1,057, the July 20 low and roughly 3 percent below the
benchmark's current level.
                                
 Volume was light, with about 8.52 billion shares traded on
the New York Stock Exchange, the American Stock Exchange and
Nasdaq, well below last year's estimated daily average of 9.65
billion.
  (Reporting by Ryan Vlastelica; Additional reporting by
Rodrigo Campos; Editing by Kenneth Barry)