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* U.S. factory activity shrinks for first time since 2016
* Technology stocks weigh most on S&P 500
* Boeing (NYSE:BA) off on fears of more delays to 737 MAX return
* Indexes fall: Dow 1.35%, S&P 500 0.84%, Nasdaq 1.08%
(Updates to early afternoon, adds background)
By Uday Sampath Kumar
Sept 3 (Reuters) - U.S. stocks fell on Tuesday as data
showed factory activity shrank for the first time since 2016 in
August, renewing fears that a drawn-out trade war between the
United States and China could tip the world's largest economy
into recession.
The Institute for Supply Management said its index of
national factory activity dropped to 49.1, compared with a
reading of 51.1 estimated by analysts polled by Reuters.
The weak data also pushed the benchmark 10-year yield
US10YT=RR to its lowest level since July 2016. Shares of banks
.SPXBK , which typically come under pressure in a low interest
rate environment, slid 2%.
"Sentiment was already poor to start the day and then the
weaker-than-expected manufacturing data just added fuel to the
fire," said Dave Mazza, managing director and head of product at
asset management firm Direxion in New York.
"We now have confirmation that the escalation in the trade
war has spilled over to U.S. manufacturing just as it has to
manufacturing around the globe," he added.
U.S. stocks started the day on weak footing as Washington
and Beijing kicked off a new round of tariffs over the weekend,
worrying investors who see no signs of an early resolution to
the long-running trade war, which has rattled markets for months
and weighed on world economies.
Rising OPEC and Russian production, combined with demand
concerns due to a global economic slowdown dragged down oil
prices and drove a 1.3% drop in energy shares .SPNY .
Trade-sensitive industrials .SPLRCI slipped 1.8%, while
technology stocks .SPLRCT fell 1.2%.
Chipmakers, which have large revenue exposure to China, also
fell. The Philadelphia Semiconductor index .SOX dropped 2%.
At 12:56 p.m. ET the Dow Jones Industrial Average .DJI was
down 355.99 points, or 1.35%, at 26,047.29, the S&P 500 .SPX
was down 24.48 points, or 0.84%, at 2,901.98 and the Nasdaq
Composite .IXIC was down 85.73 points, or 1.08%, at 7,877.15.
Boeing Co shares BA.N , tumbled 3.2%, weighing the most on
the Dow, after the Federal Aviation Administration said on
Friday a global panel of experts will need a few more weeks to
finish its review into the company's 737 MAX certification.
U.S. casino operators felt the brunt of slowing economic
growth in China as gambling hub Macau posted weak August casino
revenue. Shares of Wynn Resorts Ltd WYNN.O , Las Vegas Sands
Corp LVS.N and MGM Resorts International MGM.N fell between
2% and 4.5%. Investors will also keep a close watch on the monthly jobs
report due on Friday, which is expected to offer clues on the
likelihood of another rate cut from the Federal Reserve at its
mid-September meeting.
The disappointing manufacturing data is not out of sync with
the market's expectation of a 25 basis point rate cut this month
but weaker-than-expected non-manufacturing data may change the
central bank's perspective on cutting rates further, Mazza said.
Among few gainers were the defensive utilities .SPLRCU ,
real estate .SPLRCR and consumer staples .SPLRCS sectors.
Declining issues outnumbered advancers for a 1.94-to-1 ratio
on the NYSE and for a 2.57-to-1 ratio on the Nasdaq.
The S&P index recorded 36 new 52-week highs and nine new
lows, while the Nasdaq recorded 42 new highs and 113 new lows.