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* Indexes down: Dow 1.57%, S&P 1.30%, Nasdaq 1.28%
* Fed cuts rates by half percentage point
* Concerns about virus impact still dominate (Adds details, updates prices)
By Medha Singh
March 3 (Reuters) - Wall Street tumbled in a volatile session on Tuesday after the Federal Reserve's surprise half percentage-point cut in interest rates raised alarm over the magnitude of the coronavirus impact on the economy.
It was the Fed's first emergency rate cut since the 2008 financial crisis, underscoring how grave the central bank views the fast-evolving situation.
The rate reduction came two weeks ahead of a scheduled policy meeting, where traders had fully priced in a 50 basis point cut.
Stocks had initially jumped more than 1%, but later fell as traders worried whether pumping more money into financial markets would address the central problem - a drop in business activity as workers and consumers stay home.
"The market reaction now is negative because the Fed sent the wrong message to the market," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
"All of a sudden the Fed is really worried about the economy and this is the reason why we are having this volatility."
Bank stocks, which tend to outperform when interest rates are higher, dropped 3.4%, while the broader financials sector fell 2.6%.
Wall Street closed Friday with its biggest weekly decline in more than a decade as growing cases of the flu-like virus outside China fanned fears of a global recession.
All three major indexes entered correction territory, implying a 10% drop from record highs. Many investors will consider an index to remain in a correction until it reclaims its peak.
"The rate cut underscores the magnitude of the problem that the global economy is facing," said Peter Kenny, founder of Kenny's Commentary LLC and Strategic Board Solutions LLC in New York.
"Normally, markets would welcome a rate cut, and they were hoping for it. Now that we've got it, the question is what's next."
Earlier in the day, Group of Seven finance ministers and central bank governors had pledged appropriate actions to support the economies.
At 12:57 p.m. ET, the Dow Jones Industrial Average was down 418.83 points, or 1.57%, at 26,284.49, while the S&P 500 was down 40.32 points, or 1.30%, at 3,049.91. The Nasdaq Composite was down 114.17 points, or 1.28%, at 8,838.00.
Seven of the 11 major S&P sectors were trading lower. Real estate and utilities, commonly considered defensive sectors, were the outperformers.
Healthcare equipment maker Thermo Fisher Scientific, rose 3.3% after it launched a $11.6 billion bid for German genetic testing company Qiagen.
Advancing issues outnumbered decliners by a 1.15-to-1 ratio on the NYSE, while declining issues outnumbered advancers for a 1.40-to-1 ratio on the Nasdaq.
The S&P index recorded two new 52-week highs and six new lows, while the Nasdaq recorded 16 new highs and 78 new lows. (Reporting by Medha Singh, Sanjana Shivdas and Sruithi Shankar in Bengaluru; additional reporting by Caroline Valetkevitch in New York; Editing by Patrick Graham and Arun Koyyur)