* Disney falls after rare earnings miss
* Macy's weak report weighs on other retailers
* Fossil hits 6-1/2 yr low on forecast cut
* Office Depot, Staples slump after calling off merger
* Indexes down: Dow 0.70 pct, S&P 0.41 pct, Nasdaq 0.29 pct (Updates to early afternoon)
By Tanya Agrawal
May 11 (Reuters) - U.S. stocks fell on Wednesday as weak earnings reports from Walt Disney, Macy's and Fossil reverberated across the consumer sector.
Disney shares were down 4.5 percent at $101.82 after the company posted a rare earnings miss. The stock was the biggest drag on the Dow, accounting for about 33 points of the index's 120 points fall.
Department store chain Macy's tumbled 13.4 percent to $32.04, while watch maker Fossil sank as much as 34 percent to a six-and-a-half year low of $26.51 after the two companies slashed their full-year forecasts.
Eight of the 10 major S&P sectors were lower, led by the consumer discretionary index's 1.57 percent drop.
The index was on track for its biggest one-day fall in three months. The broader S&P retail index was down 1.32 percent.
"We're getting a lot of news on U.S. consumers today and it isn't good news," said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.
"Wages aren't rising and its quarters like these that show that the consumer isn't too optimistic about the U.S. economy."
Macy's weak earnings report also weighed on big retailers. Dow components Wal-Mart and Nike dropped 3.3 percent, while Target fell 5 percent.
At 12:45 p.m. ET (1645 GMT) the Dow Jones industrial average was down 125.16 points, or 0.7 percent, at 17,803.19, the S&P 500 was down 8.47 points, or 0.41 percent, at 2,075.92 and the Nasdaq Composite was down 13.74 points, or 0.29 percent, at 4,796.14
The drop in stocks on Wednesday comes a day after the S&P 500 notched its biggest daily percentage gain in two months.
Traders are struggling to find new catalysts to propel the market back towards record highs due to underwhelming first-quarter earnings and mixed economic data that provided little clarity on the path of Federal Reserve's rate-hike path.
First-quarter earnings for S&P 500 companies have mostly beaten analysts' expectations, but are still estimated to have fallen 5.4 percent from a year ago, according to Thomson Reuters data.
Macy's report dragged down other department store chains, with J.C. Penney, Kohl's, Nordstrom and Dillard's falling between 2 to 7 percent.
Fossil's report, coupled with Macy's results, weighed on other luxury retailers such as Movado, which tumbled 10 percent and Michael Kors, which dropped 12 percent.
Office Depot slumped 39.5 percent to $3.74 after terminating its planned merger with Staples. Staples was down 15.9 percent at $8.72.
Declining issues outnumbered advancing ones on the NYSE by 1,455 to 1,421. On the Nasdaq, 1,461 issues fell and 1,204 advanced.
The S&P 500 index showed 38 new 52-week highs and seven new lows, while the Nasdaq recorded 43 new highs and 37 new lows. (Reporting by Tanya Agrawal; Editing by Savio D'Souza)