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* Stocks slide as Mnuchin pulls out of Saudi investor conference
* European Commission says Italy budget in breach of EU rules
* Textron, United Rentals, Sealed Air results disappoint
* Hawkish Fed minutes fan fears of rising borrowing costs
* Indexes down: Dow 1.62 pct, S&P 1.69 pct, Nasdaq 2.20 pct (Updates to late afternoon, changes byline, adds NEW YORK to dateline)
By April Joyner
NEW YORK, Oct 18 (Reuters) - U.S. stocks fell more than 1 percent on Thursday as the European Commission issued a warning regarding Italy's budget and concerns mounted over the possibility of strained relations between the United States and Saudi Arabia.
S&P 500 technology stocks fell more than 2 percent, as did the tech-heavy Nasdaq.
Wall Street's major indexes pared early losses in morning trading but reversed course to fall further as European markets closed. Italian bond yields jumped after the European Commission deemed the country's 2019 budget draft to be in breach of EU rules. U.S. stocks declined further after U.S. Treasury Secretary Steven Mnuchin pulled out of an investor conference in Saudi Arabia as the White House awaited the outcome of investigations into the disappearance of Saudi journalist Jamal Khashoggi.
"It's a function of a lot of things coalescing into a concern," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Pittsburgh. "The market continues to struggle in the aftermath of the bigger drawdown a week ago."
Mnuchin's decision sparked worries of potential strain in U.S.-Saudi relations, especially if Saudi leaders were found to have been involved in Khashoggi's disappearance. Investors raised concern that if Saudi Arabia were sanctioned, it could restrict oil supply, prompting a rise in energy prices.
Shares of defense contractors such as Lockheed Martin Corp and Raytheon Co also fell on concerns that U.S. lawmakers may block arms deals with Saudi Arabia. President Donald Trump announced on Saturday that his administration had won a $100 billion military order from the country.
U.S. stocks had opened lower as weak earnings reports from companies such as Cessna business jet maker Textron Inc and equipment rental company United Rentals Inc raised concerns about the impact of tariffs, climbing borrowing costs and rising wages on corporate profits.
Textron shares fell 10.8 percent and United Rentals shares sank 14.7 percent, while Sealed Air Corp shares slid 8.7 percent after the packaging company cut its full-year profit outlook due to higher raw material and freight costs.
Worries over rising interest rates following Wednesday's release of the Federal Open Market Committee's minutes from its September meeting also pressured U.S. stocks.
"The market is coming to grips with the reality that the Fed may make financial conditions a little tighter than they originally thought," said Paul Zemsky, chief investment officer of multi-asset strategies and solutions at Voya Investment Management in New York.
The Dow Jones Industrial Average fell 417.17 points, or 1.62 percent, to 25,289.51, the S&P 500 lost 47.59 points, or 1.69 percent, to 2,761.62 and the Nasdaq Composite dropped 168.31 points, or 2.2 percent, to 7,474.39.
Among the few bright spots was Philip Morris International Inc, which rose 3.4 percent after the Marlboro cigarette maker topped analysts' estimates for quarterly profit and sales.
Declining issues outnumbered advancing ones on the NYSE by a 3.72-to-1 ratio; on Nasdaq, a 3.43-to-1 ratio favored decliners.
The S&P 500 posted five new 52-week highs and 36 new lows; the Nasdaq Composite recorded 15 new highs and 111 new lows. (Reporting by April Joyner; Additional reporting by Medha Singh in Bengaluru; Editing by Anil D'Silva and Jonathan Oatis)