Adds Nasdaq milestone

By Naomi Rovnick

LONDON Aug 2 (Reuters) -Global stocks dropped sharply on Friday, with richly-valued tech groups taking much of the pain, asinvestor anxiety about aU.S. economic slowdown sent shockwaves through markets already rattled by downbeat earnings updates fromAmazon andIntel.

With thin summer trading likely exaggerating moves, a slump that began in Asia with a 5.8% drop for Japan'sNikkei .N225 share index, its biggest daily fall since the March 2020 COVID-19 crisis, rippled through Europe and was set to continue on Wall Street later in the day.

MSCI's broad gauge of global stocks .MIWD00000PUS dropped 0.8%,Europe's Stoxx share index .STOXX fell 1.8%.

Futures trading implied Wall Street's S&P 500 would open 1.2% lower ESc1 and contracts that track the tech-heavy Nasdaq 100 index NQc1 lost 1.8%, setting the gauge up for a 10% fall from its record closing high.

The VIX measure of U.S. stock market volatility, known as Wall Street's fear gauge, rose to its highest reading since April .VIX and U.S. Treasuries rallied as traders poured into the benchmark debt securities viewed as havens.

The sell-down followed a softer than expectedU.S. factory activity survey on Thursday and came ahead of Friday's monthly U.S. non-farm payrolls report, which economists forecast will show job growth dropped to 175,000 in July from 206,000 in June.

The U.S. Federal Reserve has kept benchmark borrowing costs at a 23-year high of 5.25%-5.50% for a year and some analysts believe the world's most influential central bank may have kept monetary policy tight for too long, risking a recession.

"The historical experience is that turnarounds in the labour market can occur quickly and brutally and that relatively moderate increases in unemployment have been enough to trigger recessions in the United States," SEB US economist Elisabet Kopelman said.

Money markets on Friday priced a 31% chance of the Fed, which is widely expected to cut rates in September and November, implementing a jumbo 50 basis points cut next month to insure against a downturn.

"That does feel like we have jumped the gun," Fidelity International fixed income manager Shamil Gohil said.

He added, however, that "we will also be watching for a rise in the unemployment rate which will give us clues about a weaker labour market and as a potential recessionary signal."

Shares in U.S. chipmaker Intel INTC.O tumbled more than 20% lower in pre-market trading on Friday after the group suspended its dividend and revealed plans to cut 15% of its workforce.

Artificial intelligence chipmaker Nvidia .NVDA, one of the biggest contributors to the tech rally, dropped 3% pre-market.

European tech stocks SX8P swooned 4.6% lower.

Nvidia, up more than 700% since January 2023, has left many asset managers with an outsized exposure to the fortunes of this single stock.

Steven Bell, chief economist for EMEA at asset manager Columbia Threadneedle, said that while investors were trimming big tech positions to rebalance their portfolios the U.S. was not about to contract.

"Personally, I'm not thinking I should run for the hills," he said.

"This is a slowdown, not a recession. And the background of lower interest rates, lower inflation and real wages rising because inflation is falling faster than wage growth, all of that's quite positive."

Haven buying went full throttle on Friday, however.

The 10-year Treasury yield US10YT=RR was 4 bps lower on the day 3.978% on Friday after dropping as much 14 bps overnight. Bond yields fall as prices of the securities rise.

The two-year yield US2YT=RR, which typically reflects near-term interest rate expectations, dropped to4.1244%.

The 10-year German bund yield, a benchmark for euro zone debt costs, fell 4 bps to 2.201%.

In foreign exchange markets, sterlingwas on track for a 1% weekly drop against the dollar GBP=D3 as traders speculated that the Bank of England would follow its first rate cut of this cycle on Thursday with another in November.

Commodity markets broadly displayed global growth fears as gold XAU added 0.7%to $2,464 an ounce and Brent crude oil LCOC1, although slightlyup on the day at $79.70 a barrel, headed for a fourth successive weekly loss.

Additional reporting by Rae Wee in Singapore. Editing by Christian Schmollinger, Andrew Heavens and Louise Heavens

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