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US STOCKS-Wall Street drops as shrinking economy brings recession closer

·3 min read

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window)

* U.S. economy contracts again in second quarter

* Meta Platforms revenue drops for first time

* Qualcomm flags weak smartphone demand

* Indexes down: Dow 0.38%, S&P 0.38%, Nasdaq 0.70% (Updates to open)

By Shreyashi Sanyal and Aniruddha Ghosh

July 28 (Reuters) - U.S. stock indexes fell on Thursday weighed down by gloomy forecasts from Meta and Qualcomm, while an early reading showed the U.S. economy contracted again in the second quarter adding to fears the economy was already in recession.

Fears of runaway inflation and aggressive monetary policy tightening biting into economic growth have spooked markets, after gross domestic product fell at a 0.9% annualized rate last quarter, the Commerce Department said in its advance GDP estimate.

A Reuters survey of economists showed GDP growth likely rebounded at a 0.5% annualized rate last quarter.

"Today's reading only adds fuel to the fire that we are in or entering a recession," said Mike Loewengart, managing director at E*Trade from Morgan Stanley.

"While it is certainly on the negative side of estimates, keep in mind that a 1% decrease is relatively small and supports the idea that any recessionary environment will be mild."

Two consecutive quarters of declines in growth are traditionally considered a recession, but the private research group that is the official arbiter of U.S. recessions looks at a broad range of indicators instead, including jobs and spending.

Worries of a recession hit Meta Platforms Inc shares, which fell 7.6% after posting its first-ever quarterly drop in revenue.

Qualcomm Inc fell 5.3% after it warned that difficult economic conditions and a slowdown in smartphone demand could hit its mainstay handset chips business.

Shares of Apple Inc fell 0.7%, while Amazon.com Inc shed 1.4% ahead of their quarterly reports after market close.

The Nasdaq clocked its biggest daily percentage gain since April 2020 on Wednesday after the U.S. Federal Reserve raised interest rates as expected and comments by Fed Chairman Jerome Powell eased some investor worries about the pace of rate hikes.

The U.S. central bank's tightening cycle has hammered mega-cap stocks as future cash flows, on which valuations of these companies rest, are discounted heavily when rates rise.

At 10:00 a.m. ET the Dow Jones Industrial Average was down 121.60 points, or 0.38%, at 32,075.99, the S&P 500 was down 15.35 points, or 0.38%, at 4,008.26, and the Nasdaq Composite was down 84.78 points, or 0.70%, at 11,947.64.

Defensive sectors, including S&P 500 utilities and real estate gained over 1% each in early trading, pointing to a largely risk-off day.

Ford Motor Co gained 3.5% after reporting a better-than-expected quarterly net income.

Advancing issues outnumbered decliners for a 1.30-to-1 ratio on the NYSE, while declining issues outnumbered advancers for a 1.33-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 30 new lows, while the Nasdaq recorded 38 new highs and 41 new lows. (Reporting by Aniruddha Ghosh and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta)