US STOCKS-Dow, S&P 500 drop on banks, economy; Nasdaq up on tech

                                
 * Bleak earnings fuel caution but tech edges up
                                
 * Obama says more banks could fail
                                
 * Dow off 0.8 pct; S&P 500 off 0.1 pct; Nasdaq up 1.2 pct
                                
 * For up-to-the-minute market news, click [STXNEWS/US]
 (Recasts; updates with SanDisk reversing late advance)
                                
 By Ellis Mnyandu
                                
 NEW YORK, Feb 2 (Reuters) - The Dow Jones and S&P 500
indexes ended lower on Monday as uncertainty about the Obama
administration's plan to stem bank losses hit financial shares
and a bleak outlook by Macy's <M.N> fueled worries the U.S.
recession is worsening.
                                
 But the bet that technology stocks might be among early
beneficiaries from a likely economic stimulus helped boost the
Nasdaq. Tech standouts included market bellwethers Microsoft
Corp <MSFT.O>, up more than 4.2 percent, and Intel Corp
<INTC.O>, up over 5.6 percent.
                                
 Concerns about the apparent delay in a plan to shore up
beleaguered banks and unease about wrangling in Washington over
a stimulus measure helped undermine sentiment on Wall Street.
                                
 "Nobody is sure what solution is going to be put in place,
how long it's going to take, what the cost is going to be,"
said Kurt Brunner, portfolio manager at Swarthmore Group in
Philadelphia.
                                
 "There are also questions about what the economic stimulus
is going to be. Earnings today haven't been great. We're just
in a bad spot right now," he added.
                                
 DOW CLOSES BELOW 8,000 MARK
                                
 The Dow Jones industrial average <.DJI> shed 64.11 points,
or 0.80 percent, to end at 7,936.75 -- its lowest closing level
so far in 2009.
                                
 The Standard & Poor's 500 Index <.SPX> dipped 0.45 point,
or 0.05 percent, to 825.43. The Nasdaq Composite Index <.IXIC>
gained 18.01 points, or 1.22 percent, to 1,494.43.
                                
 The surge in tech bellwethers following a sharp two-day
technology sell-off, picked up speed at the end of a volatile
session and helped temper some of the gloom about the economy
and the fate of the bank aid plan.
                                
 Microsoft shares ended up 4.3 percent to $17.83 on Nasdaq,
while Intel shares climbed 5.7 percent to $13.63. Both stocks
were among the Dow's top boosts in the session.
                                
 Also on Nasdaq, shares of Apple Inc <AAPL.O> gained 1.5
percent to $91.51.
                                
 After the closing bell, flash memory maker SanDisk Corp
<SNDK.O> posted a quarterly loss, but its revenue beat
estimates handily.
                                
 Initially the stock rose more than 3 percent in after hours
trading from a Nasdaq close at $11.28. But after company
comments that 2009 visibility continued to be poor, SanDisk
shares reversed course, falling 13 percent to $9.80.
                                
 "Depending upon the form, some of the economic stimulus
will help tech. That will probably get some businesses
spending, purchasing equipment," Brunner added.
                                
 However, the tech boost was limited by declines in shares
of big manufacturers, including 3M Co <MMM.N>, down nearly 6
percent to $50.62, and Boeing <BA.N>, off almost 4 percent to
$40.80.
                                
 BANK WORRIES
                                
 Among financials, Bank of America Corp <BAC.N> slid about 9
percent to $6, while JPMorgan <JPM.N> declined 1.3 percent to
$25.19.
                                
 U.S. President Barack Obama said in an interview with NBC
it was likely that banks have not fully acknowledged all their
losses and that "some banks won't make it" through the crisis.
                                
 Investors had hoped Obama's administration would be swift
in unveiling the details of a plan to relieve banks of
money-losing assets to kick-start lending. Obama said he did
not want to pre-empt an announcement next week. For details,
see [ID:nN02437430]
                                
 Shares of Macy's Inc <M.N> dropped 4 percent to $8.59 after
the department store chain said it would cut 7,000 jobs and
slashed its quarterly dividend. [ID:nN02458041]
                                
 Adding to an already bleak earnings session, shares of
Rockwell Automation <ROK.N> were down 11 percent to $23.16
after the maker of systems to help factories run smoothly cut
its 2009 profit outlook. [ID:nN02377071]
                                
 Toy company Mattel Inc <MAT.N> reported disappointing
profits, and shares in the maker of the Barbie doll slid 16.1
percent to $11.90.
                                
 On the economic front, the latest reading in a U.S.
manufacturing index showed manufacturing contracted again in
January, but at a far smaller-than-expected pace.
                                
 Volume was moderate on the New York Stock Exchange, where
about 1.33 billion shares changed hands, below last year's
estimated daily average volume of 1.49 billion shares, while on
the Nasdaq, about 2.03 billion shares traded, below last year's
daily average of 2.28 billion.
                                
 Decliners outnumbered advancers on the NYSE by a ratio of
six to five. On the Nasdaq, about six stocks rose for every
five that fell.
 (Editing by Gary Crosse)