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* U.S. services sector contracts for first time since 2016
* Technology leads sector declines
* Indexes down: Dow 0.9%, S&P 1.2%, Nasdaq 1.9% (Updates to late afternoon)
By Sruthi Shankar
NEW YORK, Feb 21 (Reuters) - U.S. stocks sold off on Friday as a spike in new coronavirus cases in China and other countries and as data showing U.S. business activity stalled in February fueled investors' fears about the economy.
Declines on Friday were led by heavyweights Microsoft Corp , Amazon.com Inc and Apple Inc for a second straight day.
The S&P technology index dropped 2.4%. Chipmakers, with strong ties to China for revenue, also fell sharply, with the Philadelphia Semiconductor index falling 3%.
China reported a jump in new cases on Friday, while South Korea became the latest hot spot with 100 new cases and more than 80 people tested positive for the virus in Japan.
"It's creating a wild card," for companies and others, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. "Going into a weekend not so long after the stock market was hitting highs, people are taking some money off the table."
The impact could extend beyond the first quarter, he said.
Apple earlier this week warned on sales due to the impact of the virus outbreak.
The worries pushed up Wall Street's fear gauge, the CBOE volatility index, and caused investors to seek safe-haven assets.
Gold and bond prices rose, while defensive equity sectors - utilities, real estate and staples - all rose.
The IHS Markit Purchasing Managers' index of services sector activity dropped to its lowest level since October 2013, signalling a contraction for the first time since 2016. The manufacturing sector also clocked its lowest reading since August.
The Dow Jones Industrial Average fell 262.56 points, or 0.9%, to 28,957.42, the S&P 500 lost 39.79 points, or 1.18%, to 3,333.44 and the Nasdaq Composite dropped 189.39 points, or 1.94%, to 9,561.57.
Hopes of monetary easing by major central banks had propelled the benchmark S&P 500 and the tech-heavy Nasdaq to all-time highs earlier this week, but the indexes are on course for their first weekly decline in three weeks.
Among other stocks, Dropbox Inc jumped after it raised its outlook for operating margin, and Deere & Co rose after an unexpected rise in first-quarter profit.
Sprint Corp climbed 5.7% as it announced new merger terms with T-Mobile US that would reduce the stake of major Sprint shareholder SoftBank. T-Mobile shares dipped 0.9%.
Declining issues outnumbered advancing ones on the NYSE by a 2.13-to-1 ratio; on Nasdaq, a 2.23-to-1 ratio favored decliners.
The S&P 500 posted 30 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 70 new highs and 54 new lows. (Additional reporting by Sruthi Shankar and Manas Mishra in Bengaluru; Editing by Anil D'Silva and Chizu Nomiyama)