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* Tesla tumbles after not being included in S&P 500
* GM jumps after taking stake in electric-truck maker Nikola
* Sell-off in FAANG stocks resumes
* Fears over U.S. sanctions on SMIC pressure chip stocks
* Indexes off: Dow 1.48%, S&P 1.89%, Nasdaq 2.70% (Updates to early afternoon)
By Medha Singh and Devik Jain
Sept 8 (Reuters) - The Nasdaq tumbled on Tuesday as a sell-off in high-flying technology stocks extended to a third straight day, while Tesla tracked its worst day in nearly six months after investors were caught off guard by the stock being left out of the S&P 500.
All eleven major S&P sectors were down, with declines worsening after news on Friday that SoftBank made significant option purchases during the run-up in U.S. stocks.
Energy, financial and information technology stocks were among the biggest decliners.
"To see a period of carnage is reasonable, considering the massive run up that we have experienced since the early part of the year," said Eric Schiffer, chief executive officer of private equity firm Patriarch Organization in Beverly Hills, California.
"We'll need some time to see whether this is a fundamental shift versus a technical on exhibit, because if it is a shift to fundamentals, that is not a position where you're going to want to necessarily buy a dip."
Media reports of SoftBank's option purchases also reminded investors that market makers might have billions of dollars worth of long positions as hedges against options trades, which will have to be sold as prices fall.
"If you bought a lot of call options in the second quarter, you're doing very well, but that creates a problem for later when you need to unwind these positions," said Ken Peng, Citi Private Bank's head of Asia Investment Strategy.
Wall Street's tech-and-stimulus-led rally halted last week with the Nasdaq falling as much as 9.9% from its record closing high as investors booked profits after a run that boosted the index about 70% from its pandemic-lows.
At session lows on Tuesday, Facebook, Amazon.com , Apple, Tesla, Microsoft, Alphabet and Netflix - which are increasingly being referred to as "FAATMAN" - had collectively lost more than $1 trillion in market capitalization since Sept. 2.
Tesla plunged another 15.5% to a three-week low as the electric-car maker was excluded from a group of companies being added to the S&P 500. Investors had widely expected its inclusion after a blockbuster quarterly earnings report in July. Up to Friday's close, the stock had surged about 400% this year.
At 12:28 p.m. ET, the Dow Jones Industrial Average was down 414.98 points, or 1.48%, at 27,718.33, the S&P 500 was down 64.73 points, or 1.89%, at 3,362.23, and the Nasdaq Composite was down 305.36 points, or 2.70%, at 11,007.77.
JPMorgan Chase & Co fell 3% after a report it was probing employees who were allegedly involved in the misuse of funds intended for COVID-19 relief. The wider banks index lost 3.1%, also tracking Treasury yields.
Energy stocks slumped 3% as oil prices dove after Saudi Arabia cut its October selling prices.
Value-linked stocks fell 1.4%, but outperformed a 2.2% decline in the growth-link index. Wall Street's fear gauge climbed for the third time in four sessions.
Fears over potential U.S. sanctions against China's biggest chipmaker SMIC hit domestic suppliers, with Applied Materials Inc, Lam Research Corp and KLA Corp dropping between 6.3% and 8.3%.
General Motors Co jumped 10.9% after it acquired an 11% stake worth $2 billion in U.S. electric-truck maker Nikola Corp. The truck maker's shares surged 44.2%.
U.S. President Donald Trump and Democratic rival Joe Biden are set to visit battleground states this week as some opinion polls show the race tightening with less than 60 days to go until the Nov. 3 election.
Declining issues outnumbered advancers more than 3-to-1 on the NYSE and 1.94-to-1 on the Nasdaq.
The S&P index recorded no new 52-week high and two new lows, while the Nasdaq recorded 23 new highs and 41 new lows. (Reporting by Medha Singh and Devik Jain in Bengaluru; Additonal reporting by Tom Westbrook in Singapore; Editing by Bernard Orr, Sagarika Jaisinghani and Maju Samuel)