US STOCKS-Dow, S&P 500 dragged down by Disney; PacWest leads regional bank rout

*

Disney shares slide, top pct loser on S&P 500

*

KBW Regional Banking index hits one-week low

*

Tapestry jumps on profit outlook

*

Dow down 0.89%, S&P down 0.36%, Nasdaq flat

(Updates prices throughout to market open, adds move on KBW Regional Banking index, S&P 500 communication services sector)

By Shreyashi Sanyal and Shristi Achar A

May 11 (Reuters) - The Dow and the S&P 500 fell on Thursday, pressured by a drop in Disney shares after the company reported a fall in subscriber growth, while PacWest's latest woes sparked another rout in the regional banking sector.

Walt Disney Co slid 8.4% and was the biggest loser on the benchmark S&P 500 index, following its quarterly report on Wednesday. Streaming giant Netflix Inc's shares were also down 0.9%.

A Labor Department report showed Producer Price Index (PPI) rose 2.3% in April from a year earlier, slightly below expectations of a 2.4% increase.

Another report showed the number of Americans filing new claims for jobless benefits jumped last week to the highest level since late 2021, suggesting that higher interest rates were starting to weigh on the labor market.

The two reports provided further evidence that the economy was losing steam after Wednesday's consumer price data and raised hopes for a pause in the Federal Reserve's rate-hike campaign.

"Jobless claims obviously moved up, that is pointing to a weakening labor market. But the big story of the day is that PPI came in on a year-to-year basis better than expected," said Peter Cardillo, chief market economist at Spartan Capital Securities.

"However, the good inflation news is being somewhat clouded by the PacWest Bank's news situation. The fear factor is driving the market.. the fact that deposits went down."

PacWest Bancorp plunged 24% after it reported a drop in deposits last week and pledged an additional $5.1 billion of its loans to the central bank.

The KBW Regional Banking Index slid 1.6%, hitting a one-week low on an intraday basis, while eying a four straight session of loss.

The sector has witnessed a series of volatile sessions since March, only to be aggravated by the collapse of First Republic Bank last week.

At 9:45 a.m. ET the Dow Jones Industrial Average was down 298.34 points, or 0.89%, at 33,232.99, the S&P 500 was down 15.06 points, or 0.36%, at 4,122.58 and the Nasdaq Composite was down 3.76 points, or 0.03%, at 12,302.68.

The Nasdaq's fall was cushioned by a 4.8% rise in shares of Alphabet Inc after Google rolled out more artificial intelligence products on Wednesday to take on competition from Microsoft Corp.

The S&P 500 communication services index, housing the stock, rose 1.7%, among rare gainers on the day.

Any updates on raising the United States' $31.4 trillion debt ceiling were also being watched by investors, as the country races to avert an unprecedented default.

U.S. Treasury Secretary Janet Yellen urged Congress to raise the federal debt limit and warned that a default could have severe repercussions on the global economy and risked undermining U.S. global economic leadership.

Tapestry Inc jumped 9.1% as it raised its annual profit forecast.

Declining issues outnumbered advancers for a 2.66-to-1 ratio on the NYSE and for a 1.65-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and nine new lows, while the Nasdaq recorded 29 new highs and 86 new lows. (Reporting by Shreyashi Sanyal and Shristi Achar A in Bengaluru; Editing by Saumyadeb Chakrabarty and Anil D'Silva)