Wall Street set to open sharply lower after shock Brexit vote

By Tanya Agrawal and Yashaswini Swamynathan

(Reuters) - Wall Street was set to open sharply lower on Friday after Britain's vote to quit the European Union delivered the biggest blow to the global financial system since the 2008 financial crisis.

Futures on the S&P 500 index and Nasdaq Composite index were down about 3.5 percent while those on the Dow Jones industrial average were off 2.9 percent.

By 9 a.m. ET (1300 GMT), the number of S&P futures contracts traded had exceeded their daily average for the past year.

Investors worried about the outlook for the world economy sought refuge in the dollar and other safe-harbor assets such as gold and U.S. Treasury bonds, while dumping riskier shares. The yield on the U.S. 10-year bond hit its lowest since 2012.

Banks were among the biggest losers.

Britain's FTSE 100 stock index was down 3.8 percent in early afternoon trading. Asian stocks also tumbled.

Amid the turmoil, sterling hit a 31-year low in its biggest intraday percentage fall on record and Prime Minister David Cameron said he would step down by October.

"It's going to be a scary day," said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Massachusetts.

The market was already expected to be volatile as traders adjust portfolios to account for an annual reconstitution of the widely followed Russell stock indexes.

"We're getting close to the end of the month so people are looking to rebalance their accounts anyway," McMillan said.

Citigroup, Bank of America, JPMorgan and Goldman Sachs slumped by between 4.9 percent and 6.4 percent. U.S. banks have large operations in London.

Trading in S&P 500 and Nasdaq futures was halted briefly overnight after they fell more than 5 percent, triggering limit thresholds.

U.S. short-term interest rate futures rose amid speculation the Federal Reserve could cut interest rates to help shield the economy from any global fallout.

Investors have been waiting for the Fed to raise borrowing costs as the economy improves.

Fed Chair Janet Yellen said earlier in the week that an exit of Britain from the EU would have "significant repercussions" on the U.S. economic outlook.

Futures on the VIX volatility index - known as Wall Street's fear gauge - surged 33.7 percent to 23.07, above its long-term average of 20.

Oil prices, which are sensitive to changes in the economic outlook, dropped more than 4 percent, the biggest fall since early February. [O/R] Exxon and Chevron were down about 2.5 percent.

Among gold miners, Barrick was up 9.6 percent and Newmont Mining was up 7.7 percent.

Apple, which got more than a fifth of its revenue from Europe last quarter, was down 2.6 percent, while Facebook was down 3.2 percent.

U.S. stocks had risen in recent sessions as investors bet that Britain would remain part of the EU.

As of Thursday's close, the S&P 500 index had risen 3 percent since the start of the year.

Futures snapshot at 9:04 a.m. ET (1304 GMT):

* Dow e-minis were down 522 points, or 2.91 percent, with 216,146 contracts changing hands.

* S&P 500 e-minis were down 74.25 points, or 3.53 percent, with 1,704,926 contracts traded.

* Nasdaq 100 e-minis were down 160.25 points, or 3.59 percent, on volume of 166,520 contracts.

(Additional reporting by Noel Randewich; Editing by Alison Williams and Ted Kerr)