US STOCKS-Tech swoon leads big drop on Wall Street

* Tech sector off 2.1 pct; Apple, Microsoft among biggest

* Banks prop up market after Fed stress tests

* Rite Aid slumps 28 pct after Walgreens terminates deal

* Indexes down: Dow 0.78 pct, S&P 0.89 pct, Nasdaq 1.76 pct
(Updates to late afternoon)

By Lewis Krauskopf

June 29 (Reuters) – Wall Street fell sharply on Thursday
with the S&P 500 and Dow industrials on track for their worst
daily drops in six weeks as investors continued a recent move
out of technology shares.

The technology sector, which has led the S&P 500’s
8-percent gain for the year, dropped 2.1 percent, and were the
worst-performing major group. Declines in big tech stocks,
including Apple and Microsoft, weighed the
most on the benchmark S&P.

Financials and energy were the only sectors
in positive territory as investors may have been rotating into
groups that have lagged this year.

“U.S. equities have remained extended, at or close to record
territory for an extended period of time really without a
tremendous amount of conviction in the market,” said Peter
Kenny, senior market strategist at Global Markets Advisory
Group, in New York.

“It’s really been treading water. Without a major stimulus
to drive prices higher, equities have to reset and that’s what
they’re doing today,” Kenny said.

The Dow Jones Industrial Average fell 167.7 points,
or 0.78 percent, to 21,286.91, the S&P 500 lost 21.67
points, or 0.89 percent, to 2,419.02 and the Nasdaq Composite
dropped 109.49 points, or 1.76 percent, to 6,124.92.

The CBOE Volatility index, the widely followed
barometer of expected near-term stock market volatility, rose as
high as 15.16, its highest level in six weeks.

Equity investors also may be concerned about the rise in
interest rates globally, with European stocks also falling.

With the second quarter coming to a close, the market has
experienced a volatile few days. Just on Wednesday, the
tech-heavy Nasdaq had posted its best day since Nov. 7, and tech
remains the best-performing sector this year.

“Large-cap tech and software are extended on a valuation
basis,” Kenny said. “The opposite is the case in financials and
in energy.”

Financials were the bright spot for the stock market, rising
0.8 percent.

Bank stocks gained after the U.S. Federal Reserve approved
the banks’ plans to raise dividend payouts and share buybacks
under its annual stress test program. Wells Fargo shares
rose 2.6 percent while Citigroup gained 3.3 percent.

Energy rose 0.4 percent. Oil prices edged up after a
decline in weekly U.S. crude production temporarily alleviated
concerns about deepening oversupply.

Investors have been concerned about tepid data about U.S.
economic growth as the Fed is raising interest rates from very
low levels.

Data showed the U.S. economy slowed less sharply in the
first quarter than initially estimated due to unexpectedly
higher consumer spending and a bigger jump in exports.

The Fed can go it alone on monetary policy among global
central banks but strong data is needed for that to continue,
St. Louis Federal Reserve chief James Bullard said.

In corporate news, Rite Aid slumped 29 percent after
Walgreens Boots Alliance scrapped its deal to buy Rite
Aid after failing to win antitrust approval, but said it would
instead buy nearly half of the smaller rival’s U.S. stores.
Walgreens shares rose 1.2 percent.

Declining issues outnumbered advancing ones on the NYSE by a
2.95-to-1 ratio; on Nasdaq, a 2.22-to-1 ratio favored decliners.
(Additional reporting by Ankur Banerjee and Tanya Agrawal in
Bengaluru; Editing by Arun Koyyur and Nick Zieminski)