Stocks fell for a second straight day on Thursday, led by declines in the Nasdaq after tech bellwether Cisco Systems Inc signaled the credit crisis was hurting demand from key customers, including banks.

A late-day rebound in beaten-down financial stocks, however, pulled the indexes well off their worst levels of the day. The rebound was attributed to traders buying stocks to cover their earlier bets against the financial sector, which has been trading at two-year lows.

The Nasdaq was still left with its biggest two-day percentage drop in five years.

Cisco's chief executive said late on Wednesday the largest maker of computer networking equipment had suffered a dramatic drop in orders from banks and retailers, triggering concerns about Cisco's growth prospects, which relies on business spending.

Voicing similar worries about the outlook for the economy, Federal Reserve Chairman Ben Bernanke added to the sense of caution. He said the economy faced risks on both the growth and inflation fronts.

They got the stocks that were doing well, the big-cap tech, the ones that have been immune to the subprime story, said Stephen Massocca, co-chief executive, San Francisco-based investment bank Pacific Growth Equities, in reference to the impact of the Cisco CEO's comments.

Until recently, investors had been optimistic that tech shares offered a safe haven amid the credit turmoil that has roiled shares of banks and brokerages.

But, when you have dramatic moves in the market, you're going to have a lot of day trading and that leads to volatility. A lot of people got short midday and had to cover at the close.

The Dow Jones industrial average fell 33.73 points, or 0.25 percent, to end at 13,266.29. The Standard & Poor's 500 Index was down just 0.85 of a point, or 0.06 percent, at 1,474.77. The Nasdaq Composite Index was down 52.76 points, or 1.92 percent, at 2,696.00.

The Dow and S&P had been down 1 percent each and the Nasdaq down 3 percent during the session. The blue-chip Dow average at one point broke below its 200-day moving average, joining the S&P 500, which had a similar breakdown on Wednesday.

The Dow and S&P finished at their lowest since mid-September and have given back all of the ground gained since the first of the Federal Reserve's two interest-rate cuts this fall.

Shares of Cisco fell 9.5 percent to $29.63 and were the catalyst for the slide by other tech shares, analysts said.

The heaviest weight on the Nasdaq 100 was Apple, down 5.8 percent at $175.46, followed by Cisco.

The top-weighted decliner in the S&P 500 was Cisco.

Shares of International Business Machines Corp, the technology services company, were the biggest drag on the Dow.

IBM shares were down 4.5 percent at $106.11 on the New York Stock Exchange. Computer maker Hewlett-Packard Co, another Dow component, fell 3.7 percent to $49.94.

Gains in a handful of big technology companies, including Apple, had offset recent stock market losses, allowing the S&P to post a 1.5 percent gain last month and the Nasdaq to rise 5.8 percent.

Among Thursday's top gainers in the financial sector were shares of Morgan Stanley, which ended up 4.9 percent at $53.68. The investment bank said late on Wednesday it has suffered a $3.7 billion loss stemming from subprime mortgage exposure, which it expects will reduce fourth-quarter earnings by about $2.5 billion. Some analysts had projected a larger write-down.

But not all the financial stocks rebounded, with Citigroup being a prime example. Citigroup has fallen for eight straight sessions, its longest uninterrupted slide in more than six years and a slump that has chopped its value by 23 percent, or $48.5 billion.

Citigroup ended Thursday's session down 1.5 percent at $32.90 on the NYSE.

Trading was above average on the New York Stock Exchange, with about 2.19 billion shares changing hands, above last year's estimated daily average of 1.84 billion. On Nasdaq, about 3.45 billion shares traded, far ahead of last year's daily average of 2.02 billion.

Declining stocks outnumbered advancing ones by a ratio of about 17 to 16 on the NYSE and by about 8 to 7 on Nasdaq.

(Additional reporting by Jennifer Coogan)