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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
* Indexes down: Dow 1.3 pct, S&P 1.4 pct, Nasdaq 2.1 pct (Updates to close)
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, further denting investors' appetite for risk amid global trade tensions and rising interest rates.
The benchmark S&P 500 index closed just above its 200-day moving average, a key indicator of long-term price trends.
S&P 500 technology and consumer discretionary stocks fell more than 2 percent, as did the tech-heavy Nasdaq. Among the S&P's major sectors, only utilities and real estate, considered defensive, avoided losses.
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.
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 and prompt a rise in energy prices.
"As soon as the news came out it increased the selling," said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC in New York. "Anything that has a semblance of the possibility of trouble, people in this environment see it as a much larger problem than it may really be."
U.S. stocks had opened lower as Chinese stocks fell overnight, sparking fresh worries about the impact of trade tensions on China's economy.
Concerns over rising interest rates following Wednesday's release of the Federal Open Market Committee's minutes from its September meeting also pressured Wall Street's major indexes.
"It's the usual suspects, namely the trade war and rising rates," said Brendan Erne, director of portfolio implementation at Personal Capital in San Francisco. "They're still a double whammy."
Both those factors were reflected in weak earnings reports from Cessna business jet maker Textron Inc and equipment rental company United Rentals Inc.
Textron shares fell 11.3 percent and United Rentals shares sank 15.0 percent, while Sealed Air Corp shares slid 8.3 percent after the packaging company cut its full-year profit outlook due to higher raw material and freight costs.
The Dow Jones Industrial Average fell 327.23 points, or 1.3 percent, to 25,379.45, the S&P 500 lost 40.43 points, or 1.4 percent, to 2,768.78 and the Nasdaq Composite dropped 157.56 points, or 2.1 percent, to 7,485.14.
Among the few bright spots was Philip Morris International Inc, whose shares rose 3.5 percent after the Marlboro cigarette maker topped analysts' estimates for quarterly profit and sales.
Declining issues outnumbered advancing ones on the NYSE by a 3.47-to-1 ratio; on Nasdaq, a 3.26-to-1 ratio favored decliners.
The S&P 500 posted five new 52-week highs and 36 new lows; the Nasdaq Composite recorded 16 new highs and 128 new lows.
Volume on U.S. exchanges was 7.79 billion shares, compared to the 7.95 billion average over the last 20 trading days. (Reporting by April Joyner; Additional reporting by Sinéad Carew and Caroline Valetkevitch in New York and Medha Singh in Bengaluru; Editing by Marguerita Choy and Jonathan Oatis)