* ADP report shows unexpected cut in private payrolls
* Semis drag Nasdaq down after Morgan Stanley downgrades
* Dow up 0.02 pct, S&P off 0.3 pct, Nasdaq off 1 pct (Updates to mid-afternoon, changes byline)
By Leah Schnurr
NEW YORK, Oct 6 (Reuters) - U.S. stocks eased on Wednesday as tech shares were hit by a broker's downgrade in the chip sector, while investors weighed the prospects for more stimulus measures following a weak reading on private-sector hiring.
The Nasdaq fell more than the other two indexes, losing more than 1 percent after Morgan Stanley downgraded semiconductor companies Xilinx Inc and Altera Corp to "underweight," citing concerns about a slowdown in Asian markets.
Xilinx lost 3.1 percent to $25.54 and Altera fell 2.8 percent to $29.13. The PHLX Semiconductor Index, known as the SOX, slid 1.1 percent. The index has eased since the start of the month after surging more than 13 percent in September.
While the poor showing in the ADP Employer Services report may have underscored concerns about the weak labor market, it was at the same time a positive for market players anticipating another round of quantitative easing from the Federal Reserve.
The report showed private employers unexpectedly cut 39,000 jobs in September, ahead of Friday's larger employment report from the government.
"I think it's a 'win-win' for the market on Friday," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.
"If the report comes in weaker-than-expected, it will prompt the thinking that the Federal Reserve will begin quantitative easing sooner than later and be more aggressive. If the report comes in stronger-than-expected, it means the economy might be doing a little better."
Non-farm payrolls are forecast to come in unchanged on Friday, according to Reuters data, though private payrolls are expected to add 75,000.
The Dow Jones industrial average inched up 2.57 points, or 0.02 percent, to 10,947.29, well off its session high at 10,974.16. The Standard & Poor's 500 Index eased 3.02 points, or 0.26 percent, to 1,157.73. The Nasdaq Composite Index gave up 24.17 points, or 1.01 percent, to 2,375.26.
Investors have become increasingly hopeful the Fed will do more to buoy the economy. Stocks rallied to nearly a five-month high in the previous session after the Bank of Japan unexpectedly cut rates close to zero and said it would pour money into the markets through asset purchases.
On the earnings front, Yum Brands Inc gained 1 percent to $47.30 after reporting adjusted third-quarter earnings that beat expectations by a penny.
Alcoa will mark the unofficial start to earnings season on Thursday. In afternoon trading, Alcoa's stock was up 1.6 percent at $12.34. (Reporting by Leah Schnurr; Editing by Jan Paschal)