Facebook weighs on Nasdaq, but trade optimism boosts Dow

By Amy Caren Daniel

(Reuters) - Facebook's slump set the Nasdaq on pace for its biggest drop in a month, but the contagion was contained by a rise in trade-sensitive stocks after the United States and the European Union said they would negotiate on trade.

Facebook shares dived 18.5 percent, set for its biggest one-day percentage drop ever, after the social media giant said profit margins would plummet for years due to costs to improve privacy safeguards and slowing usage in its big advertising markets.

After an initial drop, most of the so-called FAANG group of stocks recovered. But Amazon.com, due to report results after markets close, fell 2.3 percent and was the second-biggest drag on the Nasdaq and S&P after Facebook.

Twitter, scheduled to report on Friday, slid 3.6 percent.

The tech sector declined 1.61 percent. However eight of the 11 major S&P sectors were higher, with industrials keeping the Dow Jones Industrial Average firmly in positive territory.

"So much emphasis has been placed on the success and robust returns that FAANG stocks have enjoyed year-to-date," said Eric Wiegand, senior portfolio manager at U.S. Bank Private Wealth Management in New York.

"With Facebook reporting disappointing metrics, that caused some rotation and broadened market participation."

Another drag on markets was Biogen, which tumbled 9.6 percent as trial data from its Alzheimer's drug failed to impress investors.

Industrials and trade-sensitive stock gained after President Donald Trump and the European Commission chief agreed to tackle their transatlantic trade row, seeking to resolve U.S. tariffs on steel and aluminum and Europe's retaliatory duties.

Earnings of S&P 500 companies is now expected to have risen 22.4 percent in the second quarter, compared with an estimate of 20.7 percent as of July 1, according to Thomson Reuters I/B/E/S.

At 12:41 a.m. EDT the Dow Jones Industrial Average was up 123.19 points, or 0.48 percent, at 25,537.29, the S&P 500 was down 6.48 points, or 0.23 percent, at 2,839.59 and the Nasdaq Composite was down 75.54 points, or 0.95 percent, at 7,856.70.

Chipmakers were a bright spot amid the carnage in technology stocks.

Advanced Micro Devices jumped 13 percent, while Xilinx rose 10.2 percent after robust quarterly reports.

Qualcomm gained 4.8 percent after pulling its $44-billion bid for NXP Semiconductors as it failed to win Chinese regulatory approval. NXP dropped 6 percent.

McDonald's dipped 2.2 percent after the fast-food chain missed U.S. same-store sales estimates for the first time in at least two years.

Supervalu surged 64.2 percent after United Natural Foods agreed to buy the supermarket operator in a $2.9 billion deal. United Natural sank 14.2 percent.

Advancing issues outnumbered decliners for a 1.43-to-1 ratio on the NYSE and a 1.18-to-1 ratio on the Nasdaq.

The S&P index recorded 52 new 52-week highs and four new lows, while the Nasdaq recorded 102 new highs and 52 new lows.

(Reporting by Amy Caren Daniel in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)