*

Tesla fall after report on six-seat Model Y plans

*

Boeing ( BA ) drops after brokerage's rating downgrade

*

Nvidia ( NVDA ) sheds $279 billion in market value

*

US manufacturing edges up in August from 8-month low

*

Indexes fall: S&P 500 2.1%; Nasdaq 3.3%, Dow 1.5%

(Updates to 4:20 p.m. ET)

By Chibuike Oguh

NEW YORK, Sept 3 (Reuters) - U.S. stocks slumped on

Tuesday, at the start of one of the market's historically worst

months, ahead of data likely to influence how much the Federal

Reserve will lower interest rates.

The benchmark S&P 500 index, Nasdaq Composite Index and the

Dow Jones Industrial Average recorded their biggest daily

percentage declines since early August. Nine out of 11 S&P 500

sectors fell, led by declines in technology, energy,

communication services and materials.

Market sentiment weakened as Institute for Supply Management

data on Tuesday showed U.S. manufacturing remained subdued

despite a modest improvement in August from an eight-month low

in July.

September is widely regarded as one of the worst months for

stock market performance based on data stretching back to the

1950s, said Jason Browne, president at Alexis Investment

Partners in Montgomery, Texas.

"We had a weak ISM report come out this morning, but we do

believe seasonality is a big factor here especially when you've

had such a solid performance for the year until the end of last

month," Browne said.

"Everybody is reporting about how September is such a

horrible month and that tends to feed on itself."

The so-called Magnificent Seven megacap technology stocks,

which have led this year's rally, slumped. Nvidia ( NVDA )

dropped nearly 10%, shedding $279 billion from its market

capitalization, which finished at $2.65 trillion.

Alphabet fell 3.6%, Apple ( AAPL ) lost 2.7%

and Microsoft ( MSFT ) shed 1.8%. The Philadelphia SE

Semiconductor index fell 7.8%.

The Dow fell 626.15 points, or 1.51%, to 40,936.93,

the S&P 500 dropped 119.47 points, or 2.12%, to 5,528.93

and the Nasdaq Composite slid 577.33 points, or 3.26%,

to 17,136.30.

The CBOE Volatility Index, Wall Street's fear gauge

that measures market expectations of stock market swings, jumped

33.2% to 20.72, the biggest daily percentage gain and highest

close since early August.

Traders are awaiting several labor market reports ahead of

Friday's non-farm payrolls data for August.

The Fed's meeting on Sept. 17-18 will be closely observed

following Chair Jerome Powell's recent support for easing

monetary policy.

Odds of a 25-basis point interest rate cut are at 63%, the

CME Group's FedWatch Tool showed, while those for a bigger 50

bps reduction are at 37%.

Tesla fell 1.6% after Reuters reported that the

electric vehicle maker plans to produce a six-seat variant of

its Model Y car in China from late 2025.

Boeing ( BA ) dropped 7.3% after Wells Fargo downgraded the

aircraft manufacturer's shares to "underweight" from "equal

weight."

Declining issues outnumbered advancers by a 2.52-to-1 ratio

on the NYSE, which had 297 new highs and 83 new lows. On the

Nasdaq, 946 stocks rose and 3,315 fell as declining issues

outnumbered advancers by 3.5 to 1.

Volume across U.S. exchanges totaled 12 billion shares, up

from nearly 11 billion for the 20-day moving average.