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US STOCKS-Wall St falls as Cisco's outlook takes its toll

* Cisco’s shares slide after dismal outlook

* Microsoft, other tech stocks also tumble

* Dow off 0.8 pct, S&P off 0.6 pct, Nasdaq off 1.1 pct * For up-to-the-minute market news see [STXNEWS/US] (Updates to midday, changes byline)

NEW YORK, Nov 11 (Reuters) - U.S. stocks fell on Thursday, led by technology losses as Cisco Systems Inc’s weak outlook fueled worries that economic softness will hurt profits.

Cisco's CSCO.O shares lost 16 percent to $20.57 after the Internet network product provider's CEO, John Chambers, cautioned about "short-term challenges" in Europe and public-sector spending. Late Wednesday, the company forecast revenue and earnings well below estimates. For details, see [ID:nN10245398]

On a percentage-loss basis, if Cisco closes at that level, this would be the worst one-day percentage drop since July 14, 1994, when Cisco slid 17.71 percent, according to Thomson Reuters Datastream.

Howard Silverblatt, an analyst at Standard & Poor’s, said this was set to be the biggest one-day dollar loss ever for Cisco’s stock.

By early afternoon, 385 million shares of Cisco had traded, making this one of the 10 busiest days in the history of the stock. For a FACTBOX, see: [ID:nN11276461]

The warning from Cisco also dragged down shares of other tech heavyweights: Microsoft MSFT.O, down 1.7 percent at $26.48; Hewlett-Packard HPQ.N, down 3 percent at $42.83, and Juniper Networks JNPR.N, down 0.4 percent at $34.40. The drop in Cisco's stock reduced its own market value by about $21 billion in early trading, according to S&P.

The Dow Jones industrial average .DJI fell 91.27 points, or 0.80 percent, to 11,265.77. The Standard & Poor's 500 Index .SPX shed 7.73 points, or 0.63 percent, to 1,210.98. The Nasdaq Composite Index .IXIC dropped 27.85 points, or 1.08 percent, to 2,550.93.

Analysts saw the outlook as worrisome, particularly since profit growth for technology companies this reporting period has outperformed the broader S&P 500.

“This makes me incrementally concerned about the GDP growth outlook for the next year,” said Steve Neimeth, portfolio manager for SunAmerica Asset Management, which owns Cisco shares.

Cisco’s news raises questions about the impact of state and federal cutbacks on profits, he said, asking: “Is Cisco the canary in the coal mine?”

The disappointing outlook comes as the market's recent rally was losing steam. And tech shares have led that rally, with the S&P information tech index .GSPT up about 23 percent from the end of August through Wednesday's close, compared with the S&P 500's gain of about 16 percent in that same period.

The day’s decline has helped the market recover from an overbought condition, with the smoothed relative strength index (RSI) around 63 and off a recent high of 78.

Technical indicators showed, meanwhile, that Cisco’s stock was oversold, but the moving average convergence-divergence, or MACD, triggered a “sell” signal. Momentum dropped to its lowest in 2-1/2 months.

Thursday’s plunge took Cisco’s stock below its 14-, 50- and 200-day moving averages. The stock stayed above the year’s low, which could provide some technical support. On a closing basis, the year’s low stands at $19.99, hit Aug. 31. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For graphics on Cisco, please see: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Volume in Cisco’s shares jumped massively in early trading. In the first half hour, nearly 200 million shares changed hands, almost four times the 50-day moving average for a whole day’s volume, which stands at around 50 million.

The decline in Cisco’s stock price erased much of the stock’s run-up as part of wider market rally that started in September.

The sell-off in Cisco’s stock and the tech sector points to the need for diversification, said, Kevin Mahn, chief investment officer of Hennion & Walsh Asset Management in Parsippany, New Jersey, which has about $300 million in assets under management.

“Investors should look to build more diversification in their portfolios, relying not just on normal bellwethers like tech,” Mahn said. “I’d recommend people look to places like small-caps, emerging markets and different kinds of bonds.” (Reporting by Caroline Valetkevitch; Additional reporting by Rodrigo Campos and Ryan Vlastelica; Editing by Jan Paschal)