Wall Street drops on recovery concerns, tech rout

By Ellis Mnyandu

NEW YORK (Reuters) - U.S. stocks slid on Thursday as another batch of economic data pointed to the fragility of the recovery and a brokerage's dim view on the semiconductor sector hit technology shares.

The benchmark S&P 500 suffered its worst one-day percentage fall in three weeks as investors feared that weakness in housing and labor markets would persist, making current stock valuation seem unjustified.

"There's this feeling that the economy has lost momentum from the third quarter," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "The market gained traction to the downside when the disappointing economic indicators came out."

Bank of America-Merrill Lynch cut its 2010 growth outlook for the semiconductor industry on concerns about a rising inventory glut. It downgraded 10 stocks, including Intel Corp, Texas Instruments Inc and Marvell Technology Corp.

The downgrades were a setback for those betting that the technology sector would fare better than others as the recovery takes hold. Chips are essential to a broad range of products, including computers and mobile devices.

Investors have ridden the tech wave since the S&P 500 hit a 12-year closing low on March 9. Shares of Dow component Intel fell 4.1 percent to $19.30 on Nasdaq. The PHLX Semiconductor Index dropped 3.4 percent.

On the economic front, the Conference Board's index of U.S. leading economic indicators , a gauge of the U.S. economy's prospects, rose 0.3 percent to 103.8, the highest since September 2007. But the increase fell short of Wall Street's expectation for a rise of 0.5 percent.

There was also more disconcerting news in housing. A record one in seven U.S. mortgages were in foreclosure or at least one payment was past due in the third quarter, according to fresh data signaling that the housing market's recovery will be tepid at best.