US STOCKS-Wall St pulled lower by semis, financials

* Morgan Stanley downgrades semis, Intel falls

* UBS posts loss; RBS, Lloyds agree to shake-up

* Berkshire bid for Burlington Northern boosts industrials

* Dow off 0.7 pct, S&P off 0.6 pct, Nasdaq off 0.7 pct

* For up-to-the-minute market news, click [STXNEWS/US]

(Updates to midday, changes byline)

By Leah Schnurr

NEW YORK, Nov 3 (Reuters) - U.S. stocks stumbled on Tuesday after Morgan Stanley downgraded the semiconductor sector and a shake-up at two big British banks prompted investors to sell financial shares.

Losses were limited as Warren Buffett's Berkshire Hathaway agreed to buy Burlington Northern in a deal that values the railroad company at $34 billion. Burlington shares surged 28.3 percent to $97.59, boosting the industrial sector .GSPI nearly 1 percent. For details see [ID:nN03483590].

Technology stocks led the way down after Morgan Stanley downgraded the sector to "cautious" from "attractive," and cut its view on Intel Corp (INTC.O), saying inventories were beginning to creep up in the sector. The PHLX semiconductor index .SOXX lost 2.2 percent. [ID:nBNG421836]

"Chips are very cyclical and tied to economic growth, so if you don't see them being absorbed quickly by the market, people think this recovery is just a little bit softer than expected," said Burt White, managing director and chief investment officer at LPL Financial in Boston.

But White said concern over chip inventories was overblown and said increased business spending will help absorb the inventories.

Financials and technology issues had been driving much of the market's recent recovery, and the day's negative developments hurt sentiment. Intel fell 3.1 percent to $18.42.

The Dow Jones industrial average .DJI fell 70.66 points, or 0.72 percent, to 9,718.78. The Standard & Poor's 500 Index .SPX lost 6.56 points, or 0.63 percent, to 1,036.32. The Nasdaq Composite Index .IXIC dropped 14.37 points, or 0.70 percent, to 2,034.83.

Overseas developments hampered the financial sector after Britain's Royal Bank of Scotland Plc (RBS.L) and Lloyds Banking Group Plc (LLOY.L) agreed to sell hundreds of branches and key businesses to appease European Union concerns over state aid and competition.

In addition, Swiss bank UBS AG (UBSN.VX)(UBS.N) posted its fourth consecutive quarterly loss. The KBW banks index .BKX fell 1.8 percent. [ID:nL2713325] and [ID:nL3638494]