Updates at 10:17 a.m. ET

By Johann M Cherian

Nov 25 (Reuters) - The S&P 500 and Nasdaq fell on Thursday, as Nvidia's shares tumbled on concerns over intensifying competition in the AI chip space, while investors digested mixed economic data delayed by the U.S. government shutdown.

Alphabet's shares GOOGL.O rose 2.7% after the Information reported Facebook-parent Meta Platforms <META.O> was in discussions to use Google's AI chips in its data centers from 2027 and rent chips from Google Cloud by next year.

Nvidia NVDA.O, which currently dominates the AI chips sector, dropped 6.7% to a two-month low, while Advanced Micro Devices AMD.O fell 9%.

The Philadelphia SE Semiconductor index .SOX dropped 3%, having bounced 4.6% on Monday.

"There's a false expectation that there's only one chip company out there and no one else is working in terms of competition and we've got a headline to remind us that that's just not the case," said Phil Blancato, CEO of Ladenburg Thalmann Asset Management in New York.

The Nasdaq logged its biggest one-day gain in six months on Monday, as investors scooped up tech stocks following several bouts of selling in recent weeks driven by worries of stretched valuations in the sector and high AI spending by large companies.

The S&P 500 and Nasdaq are on course to record their worst monthly performances since March.

By 10:17 a.m. ET, the Dow Jones Industrial Average .DJI rose 131.79 points, or 0.29%, to 46,583.58. The S&P 500 .SPX fell 8.75 points, or 0.13%, to 6,696.37 and the Nasdaq Composite .IXIC fell 126.39 points, or 0.56%, to 22,744.50.

DELAYED DATA TRICKLES IN

A Commerce Department report showed retail sales increased 0.2% in September, less than the 0.4% rise that economists polled by Reuters were anticipating.

A separate report showed producer prices rebounded in September as the cost of energy goods surged and producers passed on some tariffs.

Trader bets for an interest rate cut of 25 basis points next month were little changed following the data and were last at an 83% chance, doubling from around 40% last week, according to the CME Group's FedWatch Tool.

Market sentiment has recently been supported by growing bets the Federal Reserve will lower borrowing costs in December following dovish remarks by voting members on the Federal Open Market Committee such as John Williams and Christopher Waller.

"Some of the data is suggesting the economy is slowing. It does give the Fed the first piece of data to think about cutting at least," said Blancato.

Meanwhile, the hunt for the next Fed Chair was on, with Treasury Secretary Scott Bessent saying the announcement could come as soon as pre-Christmas.

Eight of the 11 major S&P 500 sectors were higher, with communication services .SPLRCL and healthcare indexes .SPXHC leading gains.

Retailers got a lift too after department store operator Kohl's KSS.N jumped 34% and clothing retailer Abercrombie & Fitch ANF.N surged 28%, with both companies raising their annual earnings forecasts.

Apparel retailer Burlington Stores BURL.N tumbled 10.5% after its third-quarter revenue missed estimates.

U.S.-listed shares of Alibaba BABA.N slipped 2.3%, reversing early gains after the Chinese e-commerce giant beat analysts' estimates for quarterly revenue.

On the Nasdaq, advancing issues outnumbered decliners by about a 1.45-to-1 ratio and a 2.3-to-1 ratio on the NYSE.

(Reporting by Johann M Cherian and Sruthi Shankar in Bengaluru; Editing by Krishna Chandra Eluri)

((johann.mcherian@thomsonreuters.com))