US STOCKS Kraft, bank worries knock Wall St; Cisco hit late
* Anxiety about bank rescue plan hurts sentiment
* U.S. service sector data offers some support
* Dow off 1.5 pct, S&P off 0.8 pct, Nasdaq off a fraction
* Cisco's after-the-bell outlook hits futures
* For up-to-the-minute market news, click [STXNEWS/US] (Updates with Cisco dropping late, adds volume in last two paragraphs)
By Ellis Mnyandu
NEW YORK, Feb 4 (Reuters) - U.S. stocks fell on Wednesday as a glum profit forecast from Kraft Foods (KFT.N) signaled consumers are skimping even on the basics and investors worried that government efforts to rescue banks could wipe out their shareholders.
Even so, a report showing that the vast service sector shrank less than expected in January spurred technology gains, helping the Nasdaq finish near break-even.
But that was before Cisco Systems Inc (CSCO.O) , the network equipment maker that is a tech bellwether, forecast a slide of as much as 20 percent in its current quarter revenue, hitting other tech shares after the bell.
In the regular session shares of Kraft, the top North American food maker, tumbled more than 9 percent and were the top drag on the Dow, followed by Walt Disney Co (DIS.N) ,which fell nearly 8 percent a day after reporting a slide in quarterly profit.
Costco Wholesale Corp (COST.O) dropped almost 7 percent after the largest U.S. warehouse club warned quarterly earnings would fall short of Wall Street's forecasts.
"Consumer spending is the lion's share of the economy," said Anthony Conroy, head trader for BNY ConvergEx in New York. "When consumers stop spending, the economy comes to a halt."
The Dow Jones industrial average .DJI fell 121.70 points, or 1.51 percent, to 7,956.66. The Standard & Poor's 500 Index .SPX shed 6.28 points, or 0.75 percent, to 832.23. The Nasdaq Composite Index .IXIC dipped 1.25 points, or 0.08 percent, to 1,515.05.
Unease about the deteriorating earnings picture and uncertainty about the banking sector are major hurdles in the market's attempt to recover from an 11-year low hit on Nov. 21. The S&P 500 is up 4 percent since then, but is down about 8 percent since the start of 2009.
Shares of Kraft, whose products include Oreo cookies and Maxwell House coffee, tumbled 9.2 percent to $26.11 on the New York Stock Exchange, while Disney plunged 7.9 percent to $19.00. Costco shed 6.8 percent to $42.98 on Nasdaq.
Shares of Bank of America plunged 11.3 percent to $4.70, capping a fifth straight day of declines and touching a 19-year low during the session, as investors fretted about the uncertainty of how a government plan to relieve banks of money-losing assets would work.
