June 20, 2013 / 5:46 PM / 5 years ago

US STOCKS-Wall Street drops in wake of Fed stimulus wind-down plan

* S&P 500 breaches 50-day moving average

* All 10 S&P sectors lower, consumer staples weakest

* Indexes down: Dow 1.5, S&P 1.6 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 hit shares on Wall Street for a second day Thursday, putting the S&P 500 index on track for its worst two-day decline 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 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. Investors were likely to watch the 1,600 level on the S&P 500 as a further support area.

“I think the markets are going to be very sensitive to all economic reports - anything that suggests that growth is picking up, that the Fed really is going to scale back bond purchases,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co. in Nashville.

Among the sectors getting hit hard were homebuilders, down 5 percent on concerns that higher borrowing rates will reduce housing activity. That came even though sales of existing U.S. homes rose in May to a three-and-a-half-year high.

Builder PulteGroup Inc fell nearly 11 percent and its trading volume was heavy at about 150 percent of its average volume over the last 30 days.

The S&P now sits about 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, with the MSCI’s all-country world markets index dropping 3.1 percent, its largest single-day drop in 19 months. That index has lost 6.8 percent from the May 21 close.

Each of the 10 S&P industry sectors fell more than 1 percent with consumer staples leading the losses with a 2 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 222.32 points, or 1.47 percent, at 14,889.87. The Standard & Poor’s 500 Index was down 25.99 points, or 1.60 percent, at 1,602.94. The Nasdaq Composite Index was down 55.63 points, or 1.62 percent, at 3,387.57.

Walt Disney shares fell 2.7 percent to $62.59 after Goldman Sachs removed the stock from its “conviction buy” list.

Shares of Ebix Inc lost 42.8 percent to $11.27, 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.

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