* U.S. services sectors contract for first time since 2016
* Technology, oil, bank stocks lead declines
* Wall St fear gauge hit highest in nearly three weeks
* Indexes down: Dow 0.73%, S&P 0.79%, Nasdaq 1.13% (Updates to open)
Feb 21 (Reuters) - U.S. stock indexes fell on Friday after data showed U.S. business activity stalled in February, and a spike in new coronavirus cases in China and elsewhere sent investors scrambling for safer assets such as gold and government bonds.
A flash reading of the IHS Markit services sector Purchasing Managers' Index 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.
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 1.5%. Chipmakers, heavily reliant on China for their revenue, also took a beating, with the Philadelphia Semiconductor index slipping 2.1%.
"With the stock market overvalued and extended, especially with tech stocks being overweight, when you get these negative data points, it is an excuse to take some profits," said Mike Gibbs, director of portfolio and technical strategy at Raymond James.
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 tumbled on Thursday as the virus appeared harder to contain.
South Korea reported 100 new cases, while more than 80 people tested positive for the virus in Japan on Friday.
The CBOE volatility index hit its highest level in nearly three weeks, while oil prices fell about 2%. Conversely, gold prices rose to their highest in seven years.
The risk-off sentiment drove up bond prices and sent yields lower, hitting shares of banks including Goldman Sachs Group Inc and JPMorgan Chase & CO.
At 10:26 a.m. ET, the Dow Jones Industrial Average was down 213.75 points, or 0.73%, at 29,006.23, the S&P 500 was down 26.57 points, or 0.79%, at 3,346.66 and the Nasdaq Composite was down 110.01 points, or 1.13%, at 9,640.95.
Among individual stocks, Dropbox Inc jumped 21.3% after it raised its outlook for operating margin, and Deere & Co rose 9.6% after an unexpected rise in first-quarter profit.
Sprint Corp climbed 5.1% 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 advancers for a 2.15-to-1 ratio on the NYSE and a 2.40-to-1 ratio on the Nasdaq.