Tumbling oil sends Wall Street into a slide

By Noel Randewich

(Reuters) - U.S. stocks fell more than 1 percent on Tuesday, with energy stocks slammed by lower oil prices and financials dropping on diminished prospects of a near-term rate hike.

The sell-off was broad, with all 10 major S&P 500 sectors in the red and every Dow Jones industrial average component but Apple declining.

The energy index's <.SPNY> 2.8 percent slide led declines as oil prices tumbled more than 2.5 percent after both the IEA and OPEC said the global crude glut would persist.

The S&P financial index <.SPSY> and KBW bank index <.BKX> both were down about 1.8 percent, with the bank index set to notch its steepest drop in more than two months.

Three U.S. Federal Reserve officials on Monday took a dovish stance on interest rates, in contrast to more aggressive comments from other officials in the past two weeks.

"There is a heightened level of uncertainty regarding hikes and investors aren't confident about any comments coming from Fed officials," said Andre Bakhos, managing director at Janlyn Capital, adding that the uncertainty would continue until the Fed's meeting on Sept. 20-21.

Futures traders cut the chances of a rate hike at the Fed's meeting on Sept. 20-21 to just 15 percent from 21 percent, according to the CME Group's FedWatch tool. Goldman Sachs cut its view to 25 percent from 40 percent.

At 2:35 p.m. ET, the Dow Jones industrial average was down 1.52 percent, to 18,046.99, the S&P 500 had lost 1.65 percent, to 2,123.37 and the Nasdaq Composite had dropped 1.36 percent, to 5,140.97.

The CBOE Volatility index <.VIX>, known as Wall Street's "fear gauge," jumped 22 percent to 18.57.

"Stocks are priced for perfection," said David Schiegoleit, managing director at U.S. Bank Private Client Reserve. "We need to see a decent uptick in third-quarter earnings, an accommodative Fed and continued good employment and housing numbers."

One bright spot in the market was Apple , which jumped 2.4 percent after two carriers reported strong demand for its newest smartphones.

Freeport McMoRan tumbled 8.8 percent on a deal to sell some Gulf of Mexico assets to Anadarko Petroleum , which dipped only 0.2 percent. Some analysts called the $2 billion deal inexpensive.

U.S. stocks briefly trimmed their losses after Nikkei reported that the Bank of Japan could move interest rates further into negative territory.

Declining issues outnumbered advancing ones on the NYSE by a 9.85-to-1 ratio; on Nasdaq, a 4.95-to-1 ratio favoured decliners.

The S&P 500 posted no new 52-week highs and 3 new lows; the Nasdaq Composite recorded 24 new highs and 41 new lows.

(Additional reporting by Tanya Agrawal; Editing by Dan Grebler)