By Sue Chang and Anora Mahmudova, MarketWatch

S&P 500, Nasdaq slump more than 2%

The Dow Jones Industrial Average started off the month with a triple-digit tumble Tuesday, as investors fled risky assets such as global equities following a fresh set of weak Chinese economic data.

China's official manufacturing purchasing managers index fell to a three-year low (http://www.marketwatch.com/story/china-factory-activity-slips-to-3-year-low-2015-09-01), triggering a wide selloff in stocks across Asia (http://www.marketwatch.com/story/chinese-factory-data-pull-asian-shares-lower-2015-09-01) and Europe (http://www.marketwatch.com/storyno-meta-for-guid) that then spread to the U.S.

The S&P 500 sank 50 points, or 2.6%, to 1,921, with all of its 10 main sectors trading in the red. The Dow Jones Industrial Average lost 416 points, or 2.5%, to 16,111. All 30 of its components were trading lower.

The Nasdaq Composite slumped 109 points, or 2.3% at 4,667.

"While today's losses are sharp, they are not as bad as last Monday's when the Dow plunged 1,000 points. So, we are not seeing panic selling, it's a lot calmer, relatively speaking," said Randy Frederick, managing director of trading & derivatives at Schwab Center for Financial Research.

Frederick noted that when the CBOE Volatility Index is above 20, as it is now, uncertainty is a prevailing theme among frightful stock investors and big swings up and down can be expected.

The Vix has jumped to 31.14, where it has hovered at for the past eight trading sessions.

Big swings in oil prices added to already volatile markets. Oil futures dropped sharply after a three-day rally, sending energy stocks sharply down.

"The summer weakness [in China] could be linked to the recent Tianjin port explosion and large-scale factory closures in Beijing ahead of the WWII victory day parade on 3 September," analysts at Barclays said in a note.

"Even so, we believe the multiyear-low PMI confirms that the economy is still not on a solid footing, and we look for a flat growth profile during the rest of 2015, with continued downside risks," they added.

On Monday, Goldman Sachs forecast China's economic data will remain pressured (http://www.marketwatch.com/story/goldman-slashes-chinas-economic-growth-targets-2015-08-31) in August, as Beijing planned to curtail construction and production from Aug. 20 through this Friday to improve air quality.

"Support [for the S&P 500] is expected to emerge at 1,927. The ability to hold that level is the key," Robert Pavlik, chief market strategist, at Boston Private Wealth LLC.

But if strong buying fails to materialize at 1,927, the S&P 500 may fall to 1,877 before investors can expect a technical rebound, he said.

Aside from worries about China, the world's second-largest economy, Pavlik blamed much of the market nervousness on day traders and high-frequency traders who are repositioning their portfolios ahead of a possible decision by the Federal Reserve to raise interest rates.

U.S. data: The final Markit manufacturing reading for August fell to 53.0 from 53.8 in July

The Institute for Supply Management said its manufacturing index (http://www.marketwatch.com/story/us-manufacturing-growth-weakest-since-mid-2013-ism-says-2015-09-01)dropped to 51.1% last month from 52.7% in July, falling short of the 52.2% forecast of economists surveyed by MarketWatch.

Meanwhile, outlays for U.S. construction projects (http://www.marketwatch.com/story/us-construction-spending-jumps-07-in-july-to-highest-level-in-seven-years-2015-09-01)rose 0.7% in July to a seasonally adjusted annual rate of $1.08 trillion, the highest level since May 2008, the Commerce Department reported Tuesday.

Movers and shakers: Dollar Tree Inc.(DLTR) shares tumbled more than 7% after the discount chain's second-quarter earnings missed analysts' estimates.

Oil-related companies were among biggest decliners as crude oil fell almost 7% (http://www.marketwatch.com/story/oil-prices-pull-back-after-breathless-rally-2015-09-01-3103369). Shares of Chevron Corp.(CVX) and Exxon Mobil Corp.(XOM) were down over 3% while energy was the worst performing sector in the S&P 500.

Other markets: U.S. Treasurys rallied, sending the yield on the 10-year note down 4 basis points to 2.18%, while gold inched up 0.6% to $1,139.40 an ounce as investors flocked to havens.

The greenback traded mixed against other major currencies (http://www.marketwatch.com/storyno-meta-for-guid), with the ICE dollar index off 0.3% at 95.54.

Sara Sjolin contributed to this article.

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(END) Dow Jones Newswires

September 01, 2015 13:08 ET (17:08 GMT)

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