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* Nasdaq briefly drops 20 pct from record highs
* Walgreens drops as sales miss estimates
* Indexes drop: Dow 1.6 pct, S&P 500 1.2 pct, Nasdaq 1.3 pct (Updates to late afternoon, changes byline, adds NEW YORK to dateline)
By April Joyner
NEW YORK, Dec 20 (Reuters) - U.S. stocks tumbled on Thursday as the Federal Reserve's plan to continue its balance-sheet reduction and the threat of a partial government shutdown fueled investor anxieties.
At its session low, the Nasdaq had fallen 2.85 percent, pushing the tech-heavy index more than 20 percent below its Aug. 29 closing high. However, the index, along with the Dow and the benchmark S&P 500, pared losses as the session continued.
The Fed's move on Wednesday to largely adhere to its plan for more rate hikes over the next two years and keep its balance sheet-reduction plan on "autopilot" spooked investors already worried about slowing economic growth.
"Quantitative tightening is going quicker than expected," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "U.S. stocks are repricing."
Adding to the gloom was the possibility of a partial U.S. government shutdown on Friday. President Donald Trump told Republican congressional leaders he will not sign a government funding bill because it fails to include enough funding for border security.
"For 2019, I suspected there was going to be antagonism between the House (of Representatives) and the White House," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. "This is only a partial government shutdown, but if (Trump) is going to be obstinate, that's not a good sign for next year."
The Dow Jones Industrial Average fell 364.16 points, or 1.56 percent, to 22,959.5, the S&P 500 lost 29.58 points, or 1.18 percent, to 2,477.38 and the Nasdaq Composite dropped 85.65 points, or 1.29 percent, to 6,551.18.
All of the S&P's 11 major sectors fell, with technology and consumer discretionary stocks - among the top contributors to Wall Street's gains in the past few years - registering some of the biggest declines. Energy stocks also slid as oil prices dropped to their lowest levels in a year.
Gloomy corporate results and forecasts also weighed on U.S. stocks.
Shares of Walgreens Boots Alliance Inc dropped 4.6 percent on the drugstore chain's weak retail sales, while shares of Conagra Brands Inc slid 16.4 percent after the packaged foods maker gave an underwhelming profit forecast for 2019.
Also declining as a result of disappointing corporate earnings forecasts were shares of Accenture Plc and Carnival Corp, which fell 5.0 percent and 9.4 percent, respectively.
Nike Inc shares dropped 1.7 percent ahead of the athletic footwear company's quarterly results, expected after Thursday's market close.
Declining issues outnumbered advancing ones on the NYSE by a 3.63-to-1 ratio; on Nasdaq, a 3.35-to-1 ratio favored decliners.
The S&P 500 posted no new 52-week highs and 175 new lows; the Nasdaq Composite recorded three new highs and 805 new lows (Reporting by April Joyner; additional reporting by Medha Singh in Bengaluru; editing by Shounak Dasgupta and Jonathan Oatis)