* Rising bond yields, Fed policy course weigh on equities
* Wal-Mart slumps after results; Cisco drags on technology
* Indexes down: Dow 1.4 pct, S&P 1.4 pct, Nasdaq 1.6 pct
By Havovi Cooper
NEW YORK, Aug 15 U.S. stocks saw their biggest fall since late June on Thursday in the wake of disappointing results from Wal-Mart and Cisco, and sturdy economic data that may set the stage for the Federal Reserve to scale back its stimulus soon.
Data showed consumer prices rose broadly in July and new claims for jobless benefits fell to a near six-year low last week, factors which could draw the Fed closer toward trimming its $85-billion monthly bond-buying program.
Those stimulus measures have kept interest rates low and buoyed equity markets this year, but on Thursday, U.S. Treasury yields hit two-year highs. Higher rates raise borrowing costs for consumers and companies and reduce the attractiveness of equities relative to higher-yielding bonds.
"The speed at which bond yields have increased has caught investors off-guard," said Dan Greenhaus, chief global strategist at BTIG in New York.
Wal-Mart shares fell 2.3 percent to $74.63 after the discount retailer posted disappointing same-store sales and missed revenue estimates for a fifth consecutive quarter. The company also lowered its revenue and profit forecasts for the year.
"The Wal-Mart earnings report is as big a macro indicator as (gross domestic product data)," said Nicholas Colas, chief market strategist at ConvergEx Group in New York.
"It shows that (consumer spending) isn't that strong yet - inflation is rising, wages are not, unemployment is still pretty high and that's not a recipe for a strong retail environment."
The Dow Jones industrial average fell 221.17 points, or 1.44 percent, to 15,116.49, the S&P 500 lost 23.88 points, or 1.42 percent, to 1,661.51 and the Nasdaq Composite dropped 59.535 points, or 1.62 percent, to 3,609.738.
The S&P 500 index's 1.4 percent drop was its biggest decline since June 20.
Trading volume was low, as it tends to be in August, and will likely remain lackluster as earnings season winds down.
The technology sector was the biggest laggard on the S&P 500, weighed down heavily by Cisco Systems, which fell 6.9 percent to $24.55 as a slew of brokerages cut their price targets on the stock. The network equipment maker said recently it will cut 4,000 jobs, or 5 percent of its workforce.
Shares of smaller rivals Ciena Corp and F5 Networks were also down. Ciena fell 4.7 percent to $21.43 while F5 Network slipped 2.9 percent to $89.83.
One of the few bright spots in retail earnings was Kohl's , which reported a rise in quarterly same-store sales, sending its stock up 5 percent to $53.45.
Billionaire investor George Soros added another 2 million shares to his stake in struggling retailer J.C. Penney, regulatory filings showed. The retailer's stock was up 4.5 percent at $13.70.
Meanwhile, Warren Buffett's Berkshire Hathaway shed its stake in newspaper and broadcasting company Gannett Co Inc , which sent shares of Gannett down 4.9 percent to $24.34.
Gun maker Smith & Wesson Holding's shares dropped 7.9 percent to $11.22 after a KeyBanc analyst downgraded the stock to "underweight" from "hold," citing recent its recent outperformance, coupled with lower retail demand.