US STOCKS-Wall Street drops in wake of Fed stimulus wind-down plan
* China, euro zone threaten U.S.-led economic recovery
* S&P 500 breaches 50-day moving average
* All 10 S&P sectors lower, consumer staples weakest
* Indexes down: Dow 1.6, S&P 1.7 pct, Nasdaq 1.6 pct
By Alison Griswold
NEW YORK, June 20 (Reuters) - The Federal Reserve's plans to begin winding down its massive monetary stimulus later this year hurt shares on Wall Street for a second day Thursday, putting the S&P on track for its worst two-day run in seven months.
Stocks were down across all sectors, extending a selloff sparked by Fed Chairman Ben Bernanke's comments Wednesday on how the Fed might begin to withdraw its $85 billion in monthly bond purchases before the end of the year as the economy improves. Those stimulus measures, along with sturdy corporate profits, have propped up the U.S. equity market so far this year, and boosted the markets to record highs in May.
The selling pushed the S&P 500 below its 50-day moving average, a key technical measure of the recent trend in stocks. It has closed below that technical level on only one day this year, in mid-April, and a break below it could add to selling pressure.
Bernanke's comments triggered selloffs in other markets supported by the Fed purchases, including Treasuries and U.S. commodities.
The S&P now sits around 4 percent below its all-time closing high on May 21 of 1,669.16.
Other markets around the world have been hurt much more, and Gordon Charlop, managing director at Rosenblatt Securities in New York, said a U.S. pullback was "somewhat inevitable."
"While we're seeing a turnaround in the selloff, the flow up to this point has not been disorderly. It's been a reasonably measured selloff," he said.
Investors were likely to watch the 1,600 level on the S&P 500 as support. Each of the 10 S&P sectors was down more than 1 percent, with consumer staples leading the losses with a 1.8 percent drop. Kroger fell 5.1 percent after the company said its sales growth missed expectations in the first quarter.
The Dow Jones industrial average was down 235.72 points, or 1.56 percent, at 14,876.47. The Standard & Poor's 500 Index was down 27.87 points, or 1.71 percent, at 1,601.06. The Nasdaq Composite Index was down 55.51 points, or 1.61 percent, at 3,387.69.
Specialty drugmaker Forest Laboratories Inc is among a handful of companies interested in bidding for Irish drugmaker Elan Corp Plc , two people familiar with the situation said. Elan's U.S.-traded shares shed 0.6 percent to $14.07, pressured by a rally in the greenback.
Walt Disney shares fell 2.8 percent to $62.55 after Goldman Sachs removed the stock from its "conviction buy" list.
Shares of Ebix Inc lost 37.4 percent to $12.35, a day after the insurance software provider said that it and an affiliate of Goldman Sachs would cancel their planned merger after U.S regulators started an investigation into allegations of misconduct at Ebix.
Resales of U.S. homes rose in May to the highest level in 3-1/2 years and prices jumped, a sign that the housing sector recovery is gathering steam and could give the economy a significant boost this year.
Elsewhere, weaker factory output in China and a continued recession in the euro zone kept investors concerned about global growth, pressuring stock markets worldwide.
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