* Cisco shares slide after dismal outlook
* Microsoft, other tech stocks also tumble
* Indexes off: Dow 0.5 pct, S&P 0.3 pct, Nasdaq 0.8 pct (Updates to midafternoon))
By Caroline Valetkevitch
NEW YORK, Nov 11 (Reuters) - U.S. stocks declined on Thursday, led by technology losses as Cisco Systems Inc's weak outlook fueled worries that economic softness will hurt corporate profits.
Cisco lost 16 percent to $20.57 after the Internet network product provider's chief executive cautioned about "short-term challenges" in Europe and U.S. public-sector spending. Cisco forecast revenue and earnings below estimates late Wednesday.
Analysts saw the outlook as worrisome, particularly since profit growth for technology companies has outperformed the broader S&P 500 this earnings period and since Cisco's report came about a month after other top tech names reported.
"This makes me incrementally concerned about the GDP growth outlook for the next year," said Steve Neimeth, portfolio manager for SunAmerica Asset Management in Jersey City, New Jersey, which owns Cisco shares.
It also raises questions about the impact on profits from state and federal government cutbacks, he said, asking: "Is Cisco the canary in the coal mine?"
Cisco stock is on course to suffer its worst one-day percentage drop since July 14, 1994, when it slid 17.71 percent, according to Thomson Reuters Datastream.
Cisco's warning dragged down shares of other tech heavyweights. Microsoft Corp was down 1.3 percent at $26.60, and Hewlett-Packard Co dropped 3 percent at $42.85.
Cisco's market value was reduced by about $21 billion in early trading, according to S&P.
By the end of the session, Cisco stock could wind up suffering its biggest one-day dollar loss ever, according to Howard Silverblatt, an analyst at Standard & Poor's.
By midafternoon, about 450 million shares had traded, making this one of the 10 busiest days ever for the stock.
The Dow Jones industrial average was down 61.19 points, or 0.54 percent, at 11,295.85. The Standard & Poor's 500 Index was down 4.12 points, or 0.34 percent, at 1,214.59. The Nasdaq Composite Index was down 20.60 points, or 0.80 percent, at 2,558.18.
The disappointing outlook came as the market's recent rally lost steam. Tech shares have led that rally, with the S&P information tech index up about 23 percent from the end of August through Wednesday's close, compared with the S&P 500's gain of about 16 percent in that same period.
The day's decline has helped the market recover from an overbought condition, with the smoothed relative strength index (RSI) at about 63, off a recent high of 78.
Technical indicators showed that Cisco's stock was oversold, but the moving average convergence-divergence (MACD) triggered a "sell" signal. Momentum dropped to its lowest in 2-1/2 months.
Thursday's tumble took Cisco's stock below its 14-, 50- and 200-day moving averages. The stock stayed above the year low, which could provide some technical support. On a closing basis, the year low stands at $19.99 on Aug. 31.part of wider market rally that started in September.
Volume in Cisco's shares soared in early trading. In the first half hour, nearly 200 million shares changed hands.
Cisco's and the broader tech sector's selloff pointed to the need for diversification, said Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management in Parsippany, New Jersey, which has about $300 million in assets under management.
"Investors should look to build more diversification in their portfolios, relying not just on normal bellwethers like tech," Mahn said. "I'd recommend people look to places like small-caps, emerging markets and different kinds of bonds."