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* Factory activity drops to 2-year low
* Apple revenue forecast cut drags down tech, chipmakers
* Technology and trade-sensitive industrials hit the worst
* Bristol-Myers drops, Celgene soars on $74 bln deal
* Indexes down: Dow 2.83 pct, S&P 2.48 pct, Nasdaq 3.04 pct (Updates to market close)
By Stephen Culp
NEW YORK, Jan 3 (Reuters) - Wall Street plunged on Thursday after slowing U.S. factory activity on the heels of a dire revenue warning from Apple Inc fueled fears of a global economic slowdown.
The magnitude of Apple's holiday quarter revenue shortfall sent shockwaves through the technology sector, which pulled all three major U.S. stock indexes down more than 2 percent, with the Nasdaq posting a 3 percent loss.
S&P Technology companies slid 5.1 percent, its biggest one-day percentage drop since August 2011. The Philadelphia SE Semiconductor index ended the session 5.9 percent lower.
Late Wednesday, Apple chief executive Tim Cook wrote in a letter to investors that the company had not foreseen the extent of China's economic deceleration, which was exacerbated by U.S.-China trade tensions. The iPhone maker's shares dropped 10.0 percent.
A report from the Institute for Supply Management showed U.S. factory activity in December suffered the biggest drop since October 2008, the height of the financial crisis. Its PMI reading, while still in expansion territory, hit its lowest level in more than two years.
"The Chinese slowdown was expected but today's softer-than-expected ISM number took investors by surprise because the U.S. seemed to be the only port in the storm," said Sam Stovall, chief investment strategist of CFRA Research in New York. "But now it appears that our economic growth is facing trade related headwinds."
"Investors are worried that this is an indication that things could be getting worse from here and Apple is only the tip of the iceberg," Stovall added.
Major automakers reported weak U.S. new car sales in December, with Ford Motor Co and General Motors Co reporting sales falling by 8.8 percent and 2.7 percent, respectively. Ford shares fell 1.5 percent, while GM dropped 4.1 percent.
The Dow Jones Industrial Average fell 660.02 points, or 2.83 percent, to 22,686.22, the S&P 500 lost 62.14 points, or 2.48 percent, to 2,447.89 and the Nasdaq Composite dropped 202.43 points, or 3.04 percent, to 6,463.50.
Of the 11 major sectors in the S&P 500, all but defensive real estate and utilities stocks closed in the red.
Trade-sensitive industrials also weighed on the Dow, led by Caterpillar Inc, 3M Co and Boeing Co.
Bristol-Myers Squibb Co shares dropped 13.3 percent after the drugmaker announced plans to buy rival Celgene Corp for about $74 billion. Celgene shares jumped 20.7 percent on the news.
Shares of U.S. commercial air carriers slid after Delta Air Lines cut its fourth quarter revenue estimate. The S&P 1500 Airlines index sank 5.9 percent.
Yields on 2-year Treasuries dipped below the federal funds effective rate for the first time since 2008, a move many believe suggests the central bank will not be able to continue its monetary tightening policy. The outlook for higher rates has been considered a headwind to equities in recent months.
Declining issues outnumbered advancing ones on the NYSE by a 1.39-to-1 ratio; on Nasdaq, a 2.28-to-1 ratio favored decliners.
The S&P 500 posted no new 52-week highs and 13 new lows; the Nasdaq Composite recorded 6 new highs and 48 new lows.
Volume on U.S. exchanges was 8.11 billion shares, compared to the 9.16 billion average over the last 20 trading days. (Reporting by Stephen Culp Editing by Phil Berlowitz)