* March trade deficit hits near 6-1/2 year high
* Tech stocks biggest drag on indexes
* Groupon posts quarterly loss, down 2.2 pct after bell
* Indexes end down: Dow 0.79 pct, S&P 1.18 pct, Nasdaq 1.55 pct (Updates to close)
By Noel Randewich
May 5 (Reuters) - U.S. stocks finished sharply lower on Tuesday after a surprisingly wide March U.S. trade deficit raised concerns that the economy shrank in the first quarter.
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, suggesting the economy had contracted.
“A negative number is scary for the market,” said Alan Gayle, senior investment strategist and director of asset allocation at RidgeWorth Investments.
“It was something of a one-two punch between the trade-deficit report and higher interest rates that began overseas,” he said of Tuesday’s stock selloff.
Long-term U.S. Treasury yields along with German Bunds rose on a host of factors including less pessimism about Europe, and easing downward pressure on U.S. and European inflation.
With corporate earnings season winding down, U.S. investors 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.
All 10 major S&P sectors fell, with the utilities index slumping 2.28 percent as investors dumped dividend stocks to take advantage of yields on benchmark 10-year Treasury notes at nearly two-month highs.
Despite a rally of 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 energy sector fell 1.10 percent.
Weighed down by a 2.25 percent decline in Apple, technology stocks were the biggest drag on the three major indexes, erasing the Nasdaq’s gains of the past two days.
The Dow Jones industrial average fell 142.2 points, or 0.79 percent, to end at 17,927.2. The S&P 500 lost 25.03 points, or 1.18 percent, to 2,089.46 and the Nasdaq Composite dropped 77.60 points, or 1.55 percent, to end the session at 4,939.33.
Kellogg fell 1.48 percent to $63.18 after the world’s largest maker of breakfast cereals’ net sales fell 5 percent.
Cosmetics maker Estee Lauder rose 4.02 percent after better-than-expected profit.
After the bell, Groupon posted first-quarter revenue below expectations and its stock was down 2.2 percent in extended trade.
Tuesday’s decline in stocks is only the most recent of several volatile sessions. Over the two weeks through Friday, the S&P 500 moved an average of 17.79 points daily, wider than the 12.43 point range in early March.
Declining issues outnumbered advancing ones on the NYSE by 2,452 to 610, for a 4.02-to-1 ratio; on the Nasdaq, 2,084 issues fell and 676 advanced for a 3.08-to-1 ratio.
The benchmark S&P 500 posted 16 new 52-week highs and no new lows; the Nasdaq Composite recorded 39 new highs and 68 new lows.
About 7.3 billion shares changed hands on U.S. exchanges, above the 7.0 billion daily average for the last five sessions, according to BATS Global Markets. (Reporting by Noel Randewich; Editing by Nick Zieminski)