Dollar hits 16-month high; tech woes crunch stocks

By Lewis Krauskopf

NEW YORK (Reuters) - The U.S. dollar surged on Monday to its highest point in 16 months against a basket of currencies and world stocks fell broadly amid concern about political risks in Europe, while U.S. and European technology shares were hammered.

Major U.S. stock indexes dropped more than 1 percent, with the tech-heavy Nasdaq slumping over 2 percent. Indexes were weighed down by a 4.3-percent slump in index heavyweight Apple , after an iPhone parts supplier cut its outlook.

In Europe, fears about a no-deal Brexit and a growing rift over Italy's budget put pressure on the euro and the pound. The dollar also gained strength as investors built bets on a U.S. Federal Reserve interest rate increase next month.

"Rising global uncertainty and a widening U.S. yield differential with other economies provide support, but an elevated valuation may constrain further gains," Richard Turnill, global chief investment strategist with BlackRock, wrote in a research note.

The dollar index rose 0.62 percent, with the euro down 0.8 percent to $1.1243.

The Dow Jones Industrial Average fell 493.57 points, or 1.9 percent, to 25,495.73, the S&P 500 lost 44.93 points, or 1.62 percent, to 2,736.08 and the Nasdaq Composite dropped 183.14 points, or 2.47 percent, to 7,223.76.

Apple shares fell as the main supplier for its Face-ID technology, Lumentum Holdings Inc , slashed revenue and profit forecasts, citing reduced orders from a major customer. Lumentum shares tumbled 29.4 percent and shares of other Apple suppliers also dropped.

The S&P 500 technology sector <.SPLRCT>, a main driver of the long U.S. bull run in stocks, sank 3.1 percent. Defensive groups utilities <.SPLRCU> and real estate <.SPLRCR> were the lone sectors in positive territory.

"Some of the defensive areas and defensive stocks seem to be picking up a bid at the expense of that continued rotation out of some of the more growth-oriented sectors," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

European shares were lower led by a sell-off in technology stocks after earnings and M&A news from German heavyweights Infineon and SAP .

The pan-European STOXX 600 index <.STOXX> lost 1.01 percent.

MSCI's gauge of stocks across the globe shed 1.40 percent, on pace for its third straight session of declines.

Oil prices rose, breaking a stretch of losses, after Saudi Arabia said OPEC and its partners believed demand was softening enough to warrant an output cut of 1 million barrels per day next year.

U.S. crude rose 0.28 percent to $60.36 per barrel and Brent was last at $70.78, up 0.85 percent on the day.

(Additional reporting by Richard Leong in New York and Sujata Rao in London; Editing by Toby Chopra and Nick Zieminski)