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Updated at 9:45 a.m. ET/1345 GMT
By Lisa Pauline Mattackal and Ankika Biswas
July 17 (Reuters) - The Nasdaq slumped 2% to a two-week low on Wednesday, accompanied by losses on the S&P 500, as major chip and tech stocks were pressured by the prospect of tighter U.S. trade curbs on companies giving China access to advanced semiconductor technology.
A report that the Biden Administration was considering severe trade restrictions as part of a chip clampdown against China weighed on semiconductor stocks, sending the Philadelphia SE Semiconductor index .SOX spiraling 3.5% to a two-week low.
AI-chip favorite Nvidia NVDA.O fell 4.3%, while ASML's U.S.-listing ASML.O slumped 9.2%.
U.S.-listed shares of Taiwan Semiconductor Manufacturing TSM.N shed 6.4% after Republican presidential candidate Donald Trump said Taiwan should pay the U.S. for its defense.
Marvell Technology MRVL.O, Broadcom AVGO.O, Qualcomm QCOM.O, Micron Technology MU.O, Advanced Micro Devices AMD.O and Arm Holdings ARM.O also fell over 5% each.
All the so-called "Magnificent Seven" megacap stocks slumped, with Apple AAPL.O, Microsoft MSFT.O Meta Platforms META.O and Tesla TSLA.O down between 1.2% and 2.7%.
"Whether Big Tech can keep the leadership will depend on earnings. Pullbacks are healthy and give the markets a chance to reset and they give buyers a chance to show up and buy at better prices," said Adam Sarhan, Founder & CEO, 50 Park Investments.
The S&P 500 tech index .SPLRCT led sectoral losses with a 2.7% decline, while energy .SPNY was the top gainer and was up 1.3%.
The small-cap Russell 2000 index .RUT also lost 0.2% after rallying 12% over the last five sessions.
Signaling growing investor unease, Wall Street's "fear gauge" .VIX briefly hit its highest mark in six weeks.
The blue-chip Dow .DJI, however, held some ground, with Johnson & Johnson JNJ.N rising 2.7% after a second-quarter results beat and Intel INTC.O bucking the chips rout to gain 3%.
After a blistering rally in tech companies since the last leg of 2023, investors have begun moving out of expensive megacaps to underperforming market sectors.
Firmer bets on a Federal Reserve rate cut in September as well as rising expectations that former President Donald Trump will be back in the White House in November following the attempt on his life have helped lift stocks in the last few sessions.
Fed officials including New York's John Williams and Board Governor Christopher Waller both that the central bank was "getting closer" to the point where it could start cutting interest rates, with Richmond's Thomas Barkin saying the U.S. was at the "back end" of inflation.
In economic data, production at U.S. factories increased more than expected in June, contributing to a solid rebound in second-quarter output, although higher borrowing costs remain a constraint.
At 9:45 a.m. ET, the Dow Jones Industrial Average .DJI was up 28.20 points, or 0.07%, at 40,982.68, the S&P 500 .SPX was down 54.33 points, or 0.96%, at 5,612.87, and the Nasdaq Composite .IXIC was down 338.95 points, or 1.83%, at 18,170.39.
U.S. drugmaker Eli Lilly LLY.N fell 2.3% after Swiss rival Roche's ROG.S promising early-stage data from an experimental obesity pill.
Spirit Airlines SAVE.N slumped 8.2% after trimming its second-quarter revenue outlook, citing lower-than-expected -ticket revenue.
Declining issues outnumbered advancers for a 1.26-to-1 ratio on the NYSE, and for a 1.62-to-1 ratio on the Nasdaq.
The S&P index recorded 49 52-week highs, while the Nasdaq recorded 93 highs and lows.
(Reporting by Lisa Mattackal and Ankika Biswas in Bengaluru; Editing by Pooja Desai)