* Tesla tumbles after not being included in S&P 500
* GM jumps after taking stake in electric-truck maker Nikola
* Sell-off in FAANG stocks resumes
* Fears over U.S. sanctions on SMIC pressure chip stocks
* Indexes off: Dow 1.91%, S&P 2.06%, Nasdaq 2.53%
(Adds comments, details; updates prices)
By Medha Singh
Sept 8 (Reuters) - The Nasdaq tumbled on Tuesday as investors dumped high-flying technology stocks, while Tesla tracked its worst day in nearly six months after a surprise exclusion from the S&P 500.
All eleven major S&P sectors fell in early trading, with declines worsening after news on Friday that SoftBank 9984.T made significant option purchases during the run-up in U.S. stocks.
Still, market participants said they did not expect a prolonged sell-off against the backdrop of an accommodative monetary policy by the Federal Reserve, which last week indicated a higher toleration for inflation rising above 2%.
"I'm not going to throw in the towel here and say the tech run is over," said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.
"It's still a healthy correction. We came a long way and it's time to cool off a little bit."
Media reports of SoftBank's option purchases also reminded investors that market makers might have billions of dollars worth of long positions as hedges against options trades, which will have to be sold as prices fall. you bought a lot of call options in the second quarter, you're doing very well, but that creates a problem for later when you need to unwind these positions," said Ken Peng, Citi Private Bank's head of Asia Investment Strategy.
Wall Street's tech-and-stimulus-led rally halted last week with the Nasdaq .IXIC falling as much as 9.9% from its record closing high - hit just five days ago - as investors booked profits after a run that boosted the index about 70% from its pandemic-lows.
At session lows on Tuesday, Facebook FB.O , Amazon.com AMZN.O , Apple AAPL.O , Tesla TSLA.O , Microsoft MSFT.O , Alphabet GOOGL.O and Netflix NFLX.O - together known as "FAATMAN" - collectively lost more than $1 trillion in market capitalization since Sept. 2.
Tesla plunged another 15.1% to a three-week low after the electric-car maker was excluded from a group of companies being added to the S&P 500.
At 10:49 a.m. ET, the Dow Jones Industrial Average .DJI was down 536.63 points, or 1.91%, at 27,596.68, the S&P 500 .SPX was down 70.76 points, or 2.06%, at 3,356.20, and the Nasdaq Composite .IXIC was down 286.42 points, or 2.53%, at 11,026.72.
Fears over potential U.S. sanctions against China's biggest chipmaker SMIC 0981.HK hit domestic suppliers, with Applied Materials Inc AMAT.O , Lam Research Corp LRCX.O and KLA Corp KLAC.O dropping between 6.6% and 7.8%.
General Motors Co (NYSE: GM ) GM.N jumped 7.9% after it acquired an 11% stake, worth $2 billion, in U.S. electric-truck maker Nikola Corp NKLA.O . The truck maker's shares surged 37.3%. President Donald Trump and Democratic rival Joe Biden are set to visit battleground states this week as some opinion polls show the race tightening with less than 60 days to go until the Nov. 3 election. issues outnumbered advancers more than 4-to-1 on the NYSE and 2-to-1 on the Nasdaq.
The S&P index recorded no new 52-week high and two new lows, while the Nasdaq recorded 20 new highs and 37 new lows.
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