* March trade deficit hits near 6-1/2 year high
* Tech stocks biggest drag on indexes
* Indexes off: Dow 0.66 pct, S&P 1.01 pct, Nasdaq 1.52 pct (Updates to afternoon)
By Noel Randewich
May 5 (Reuters) - U.S. stocks sagged in afternoon trading on Tuesday after a surprisingly wide March U.S. trade deficit suggested that the economy contracted in the first quarter.
Despite a rally of more than 2 percent in oil, energy stocks were stung for a second day by criticism of fracking companies by David Einhorn, the influential head of hedge fund Greenlight Capital.
The $51.4 billion March deficit was the highest in nearly 6-1/2 years and larger than the $45.2 billion the government assumed in its snapshot of first-quarter gross domestic product last week.
The weak economic data did little to appease investors who are bracing for an April payroll report due on Friday that could give a hint of when the U.S. Federal Reserve will begin raising interest rates.
"Earnings season is largely over and everyone is waiting for the payroll number," said David Carter, chief investment officer at Lenox Wealth Advisors in New York. "We're sitting on our hands and saying, 'I need to get a better idea of what the Fed will do.'"
All 10 major S&P sectors were down, with the utilities index 2.07 percent lower as investors dumped dividend stocks to take advantage of yields on benchmark 10-year Treasury notes at nearly two-month highs.
The energy sector was off 0.68 percent.
Technology stocks, led by Apple, were the biggest drag on the three major indexes and largely erased the Nasdaq's gains in the past two days.
At 2:04 p.m., the Dow Jones industrial average fell 119.65 points, or 0.66 percent, to 17,950.75, the S&P 500 lost 21.31 points, or 1.01 percent, to 2,093.18 and the Nasdaq Composite dropped 76.11 points, or 1.52 percent, to 4,940.82.
Kellogg fell 1.70 percent to $63.03 after the world's largest maker of breakfast cereals' net sales fell 5 percent.
Cosmetics maker Estee Lauder rose 4.05 percent after it reported better-than-expected profit.
News Corp and Groupon are scheduled to report after the close.
Declining issues outnumbered advancing ones on the NYSE by 2,468 to 562, for a 4.39-to-1 ratio on the downside; on the Nasdaq, 2,133 issues fell and 591 advanced for a 3.61-to-1 ratio favoring decliners.
The S&P 500 was posting 16 new 52-week highs and no new lows; the Nasdaq Composite was recording 33 new highs and 56 new lows. (Reporting by Noel Randewich; Editing by Nick Zieminski)