By Lewis Krauskopf
(Reuters) - Wall Street tumbled more than 2 percent on Tuesday, led lower by bank and industrial shares, as the U.S. bond market sent worrisome signs about economic growth and investors worried anew about global trade.
A prominent Federal Reserve official's comments about the path of interest rate hikes added to the uncertainty for investors, as did setbacks for Britain's plans to leave the European Union.
The S&P 500 <.SPX> was on pace for its biggest single-day percentage drop in about six weeks, giving back some gains from Monday and a week earlier, when the benchmark index tallied its largest weekly percentage gain in nearly seven years.
Investors were focused on U.S. Treasury yields, where the benchmark 10-year yield fell to its lowest point since mid-September. The spread between the 10-year yield over its two-year counterpart also shrank to the smallest in over a decade, a closely watched signal because a so-called yield curve "inversion," when the two-year yield more than the 10-year bond, preceded all the recessions of the past 50 years.
The Dow Jones Industrial Average <.DJI> fell 590.02 points, or 2.28 percent, to 25,236.41, the S&P 500 <.SPX> lost 62.05 points, or 2.22 percent, to 2,728.32 and the Nasdaq Composite <.IXIC> dropped 195.46 points, or 2.63 percent, to 7,246.06.
Stocks had rallied on Monday following a truce between U.S. President Donald Trump and Chinese President Xi Jinping on their trade dispute following weekend talks in Argentina, but investor optimism over a resolution faded on Tuesday. Trump himself warned he would revert to tariffs if the two sides could not resolve their differences.
"The sell-off that we have seen throughout the day is really about taking a look at the tariff conversation and realizing that nothing has been resolved and that there is still some work to do and some of the euphoria that we felt yesterday was more on the headline than on the substance," said Delores Rubin, senior equities trader at Deutsche Bank Wealth Management in New York.
In comments on Tuesday, New York Fed President John Williams said the U.S. central bank should expect to continue raising interest rates "over the next year or so" even while it pays close attention to possible risks highlighted by financial markets.
Declining issues outnumbered advancing ones on the NYSE by a 4.03-to-1 ratio; on Nasdaq, a 5.10-to-1 ratio favoured decliners.
The S&P 500 posted 40 new 52-week highs and 27 new lows; the Nasdaq Composite recorded 36 new highs and 164 new lows.