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* Apple tumbles on sales forecast cut, blames China
* Indexes drop: Dow 1.40 pct, S&P 1.22 pct, Nasdaq 1.72 pct
* Technology biggest drag among 11 major S&P sectors
* Chipmakers, mainly Apple suppliers lead decliners
* Trade-sensitive industrials also fall
* Celgene soars on Bristol-Myers' $74 bln offer (Updates to open)
By Sruthi Shankar
Jan 3 (Reuters) - U.S. stocks slumped on Thursday, after Apple Inc's rare sales warning exacerbated fears that the Sino-U.S. trade war and a slowing China economy would eat into corporate profits, with weaker-than-expected U.S. factory data adding to nerves.
Apple sank 8.5 percent, the biggest drag on the three major Wall Street indexes, after the company slashed its holiday-quarter revenue forecast on slowing iPhone sales in China, the first major warning with the U.S. earnings season around the corner.
The S&P technology sector dropped 3.47 percent, leading declines on the S&P 500.
Chipmakers, which count both Apple and China as major customers, weighed the most on the sector. IPhone suppliers including Qorvo Inc, Advanced Micro Devices and Skyworks Solutions Inc fell more than 7 percent.
The Philadelphia Semiconductor index slumped 4.13 percent.
"Apple reiterates worries that China and trade issues have not been resolved," said Robert Pavlik, chief investment strategist, senior portfolio manager at SlateStone Wealth LLC in New York.
"People are worried that if a big name such as Apple has to report a decline in earnings, who else can be protected from something like that."
Apple's warning rocked financial markets, as investors sought safety in bonds and less risky assets. Sectors perceived as bond-proxies including utilities, consumer staples and real estate were the only gainers on the S&P 500.
At 9:59 a.m. ET the Dow Jones Industrial Average was down 325.79 points, or 1.40 percent, at 23,020.45, the S&P 500 was down 30.55 points, or 1.22 percent, at 2,479.48 and the Nasdaq Composite was down 114.96 points, or 1.72 percent, at 6,550.98.
Apple's slide is a gloomy omen for Wall Street bulls hoping for an early gift in 2019 following December's steep selloff.
Though the selloff has made stocks cheaper, with the S&P 500's valuation now at 14 times expected earnings from 18 times a year earlier, earnings estimates have also been sharply cut.
Analysts on average expect S&P 500 companies to increase their earnings per share by nearly 7 percent this year, down from a forecast of 10 percent at the start of October and far below their expectations of 24 percent EPS growth for 2018, according to Refinitiv's IBES.
Apple's warning follows data earlier this week that showed a deceleration in factory activity in China and the euro zone, indicating the ongoing U.S.-China trade dispute was taking a toll on global manufacturing.
The Institute of Supply Management data showed on Thursday that U.S. factory activity slowed more than expected in December. The ISM index of national factory activity fell to 54.1 in December, falling short of economists' estimate of 57.9.
The trade-sensitive industrials sector fell 1.4 percent, with trade bellwethers Boeing Co and Caterpillar Inc dropping over 2 percent each.
Markets had taken some comfort from the ADP National Employment Report which showed U.S. private sector jobs rose far more than expected in December.
Celgene Corp jumped 28 percent, providing the biggest boost to the S&P 500, after Bristol-Myers Squibb Co offered to buy the drugmaker for about $74 billion in a cash-and-stock deal. Bristol-Myers fell 12.6 percent.
Declining issues outnumbered advancers for a 1.84-to-1 ratio on the NYSE and a 2.47-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week highs and 7 new lows, while the Nasdaq recorded no new highs and 15 new lows. (Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta)