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* August nonfarm payrolls rise by 1.37 mln
* Stay-at-home stocks lose ground again
* Shares of big U.S. lenders advance
* Indexes down: Dow 2.11%, S&P 2.80%, Nasdaq 4.19% (Adds comment, details; Updates prices)
By Medha Singh and Devik Jain
Sept 4 (Reuters) - Wall Street's main indexes extended declines on Friday, with the Nasdaq on track for its worst two-day fall since March as technology stocks sold off again, overshadowing data showing a steeper-than-expected drop in the August unemployment rate.
The tech-heavy Nasdaq lost over 4% and the S&P 500 dropped below its February peak, as the indexes lost ground for the second straight day after hitting record closing highs on historic stimulus and a narrow rally in heavyweight technology stocks.
Mega-cap companies Apple Inc, Microsoft Inc , Amazon.com Inc and Facebook Inc, which were down between 4.5% and 5.9%, weighed heavily on the indexes.
"It's just position squaring ... not surprising since we've seen a pretty sizable run up in the tech space in the last three or four weeks," said Jack Janasiewicz, portfolio strategist at Natixis Investment Managers in Greater Boston Area.
Earlier on Friday, the Labor Department's closely watched employment report showed jobless rate fell to 8.4% from 10.2% in July, steeper than economists' forecast of 9.8%. Nonfarm payrolls, however, increased less than expected last month.
The data highlighted a patchy recovery in the labor market, adding pressure on the White House and Congress to restart stalled negotiations over the next coronavirus relief package to lift the economy out of the worst recession since the Great Depression.
Technology, communication services and consumer discretionary stocks posted the largest percentage declines among the major S&P sectors.
Bank stocks, which have lagged the broader market this year, bucked the trend and rose 0.5%.
"There are segments of the cyclical trade that you might be starting to see some rotation in to, but I don't think it's the big picture value-growth trade reversal yet," Janasiewicz said.
Fund managers warned Thursday's declines may be a preview of a rocky two months ahead as institutional investors return from summer vacations and refocus on potential economic pitfalls.
The run-up to the Nov. 3 U.S. presidential election is also expected to add to the volatility. Wall Street's fear gauge hit a more than 11-week high.
At 11:28 a.m. ET, the Dow Jones Industrial Average was down 597.13 points, or 2.11%, at 27,695.60, the S&P 500 was down 96.62 points, or 2.80%, at 3,358.44. The Nasdaq Composite was down 479.88 points, or 4.19%, at 10,978.22.
The Nasdaq was set for its biggest two-day fall since March 11, while S&P 500 and Dow headed for their worst two-day decline since June 11 and June 12, respectively.
Broadcom Inc gained 2.3% after the Apple Inc supplier forecast fourth-quarter revenue above analysts' estimates.
Declining issues outnumbered advancers for a 4.29-to-1 ratio on the NYSE and a 4.01-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week highs and no new low, while the Nasdaq recorded 18 new highs and 77 new lows. (Reporting by Medha Singh in Bengaluru; Editing by Arun Koyyur and Shounak Dasgupta)