* Fed holds rates at near-zero
* All 10 S&P sectors lower; led by energy, financials
* Oil prices fall after Fed cites health of global economy
* Indexes down: Dow 1.34 pct, S&P 1.16 pct, Nasdaq 0.93 pct (Updates to early afternoon)
By Tanya Agrawal
Sept 18 (Reuters) - Wall Street was lower in afternoon trading on Friday as the Federal Reserve's decision to keep interest rates near zero fueled concerns about global growth, muddying the outlook for stocks.
Apart from the state of the world economy, the Fed cited financial market volatility and sluggish inflation at home in its decision on Thursday, while leaving the door open for a modest policy tightening later this year.
"The path forward for stocks just became a lot less clear," J.P. Morgan analysts said in a note.
The three major indexes were down about 1 percent, with all Dow components in the red.
The Fed's decision suggested a global economic environment that is unlikely to foster the kind of earnings growth needed to support stocks at their current, above-average valuations.
Despite recent declines, the S&P 500 is still trading near 15.6 times forward 12-month earnings, above the 10-year median of 14.7 times, according to Thomson Reuters StarMine data.
Third-quarter earnings are already expected to decline 3.7 percent, according to Thomson Reuters data.
"Investors are wrestling with how concerned they should be regarding global growth," said Jeremy Zirin, chief equity strategist at UBS Wealth Management.
"The Fed has introduced a quasi third mandate about the global growth, apart from the labor market and inflation."
Worries about slowing growth in China, in particular, have roiled global markets in recent weeks.
"Investor uncertainty will continue and each economic data point and other news out of China will be sliced and diced," said Keith Lerner, chief market strategist at SunTrust Bank in Atlanta.
At 12:32 ET (1632 GMT), the Dow Jones industrial average was down 223.18 points, or 1.34 percent, at 16,451.56, the S&P 500 was down 23.02 points, or 1.16 percent, at 1,967.18 and the Nasdaq composite was down 45.46 points, or 0.93 percent, at 4,848.49.
All 10 major S&P sectors were lower, with the energy index's 2.04 percent fall leading the decliners as oil prices fell after the Fed's comments. Exxon and Chevron were off about 2 percent.
The financial index fell 1.68 percent as Citigroup , Bank of America, Wells Fargo and JPMorgan were all down about 2.5 percent. Banks would benefit from an interest rate increase.
Investors are now focusing on the Fed meeting on Oct. 27-28 as the next chance for the central bank to raise interest rates for the first time since 2006.
A growing number of economists, including those at Morgan Stanley and Barclays, are now wondering whether the Fed will raise rates at all this year.
Interest rate futures indicated only a 16 percent chance of a hike at the Fed's next meeting, with a 42 percent chance in December.
The CBOE volatility index, known as the "fear gauge", jumped 6.9 percent to 22.61, above its long-term average of 20.
La Quinta was down 15.3 percent at $16.10 after the company announced the departure of its CEO and warned of slower revenue growth due to weaker-than-expected hotel demand.
Declining issues outnumbered advancing ones on the NYSE by 1,976 to 992. On the Nasdaq, 1,822 issues fell and 878 advanced.
The S&P 500 index showed three new 52-week highs and 13 new lows, while the Nasdaq recorded 23 new highs and 36 new lows. (Reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty)