By Anora Mahmudova and Mark DeCambre, MarketWatch

Dow drops triple digits; VIX volatility index jumps

U.S. stocks fell to their lowest level in three weeks on Tuesday, as weaker-than-expected manufacturing data in China (http://www.marketwatch.com/story/chinas-caixin-manufacturing-pmi-slips-again-2016-05-02) revived worries about global growth and sent investors scurrying out of the perceived risk of equities.

European equities sold off, while commodity prices as well as currencies of commodity-exporting countries fell after a surprise interest-rate cut in Australia (http://www.marketwatch.com/story/dollar-slides-further-vs-yen-aussie-dollar-slumps-after-rate-cut-2016-05-03)added to global economic jitters.

The S&P 500 slumped 18.06 points, or 0.9%, to 2,063.37, with all of the 10 main sectors closing lower.

"The price action across assets points to a solid risk-off day, when equities, commodities and resource currencies are all hit at the same time. But until this selloff continues for a few more days, we are considering it as a technical correction," said Colin Cieszynski, senior market analyst at CMC Markets.

Among the S&P 500 sectors, energy and materials led the losses, falling 2.2% and 1.7% respectively, following a sharp drop in oil prices. Financials also were hit hard, down 1.3%.

"On risk-off days when investors are worried about global growth, the assumption is that the Federal Reserve will refrain from raising rates. It is common to see financials sell off when investors think rates will stay lower for longer," said Maris Ogg, president at Tower Bridge Advisors. Lower rates hurt bank-lending margins.

Investors piled into Treasurys, sending the 10-year yields (http://www.marketwatch.com/story/treasury-yields-tumble-to-2-week-low-amid-global-market-jitters-2016-05-03) down 8 basis points to a two-week low, while the CBOE Volatility Index jumped 6% to above 15, underscoring fear among traders.

The Dow Jones Industrial Average dropped 140.25 points, or 0.8%, to 17,750.91, led by losses in shares of J.P. Morgan Chase (JPM), off 2.3%, and United Technologies Corp. (UTX), down 2%.

Meanwhile, the Nasdaq Composite fell 54.37 points, or 1.1%, to 4,763, a day after scoring its first daily gain in eight sessions.

Analysts noted that an unexpected interest rate cut by Australia's central bank added to already gloomy sentiment. "A surprise rate cut by the Reserve Bank of Australia is probably an attempt to stop their currency from appreciating, but if all central banks do that, it's a race to nowhere," said Cieszynski.

The Australian dollar slumped to 74.90 U.S. cents (http://www.marketwatch.com/story/reserve-bank-of-australia-cuts-cash-rate-to-175-2016-05-03-0485414), down from 76.68 cents late Monday in New York.

The U.S. dollar, however, fell against most other major currencies as the yen extended its recent gains against the greenback.

Data and Fed speakers:U.S. light-vehicle sales regained momentum last month (http://www.marketwatch.com/story/us-auto-sales-recover-in-april-2016-05-03)thanks to cheap credit, low gasoline prices and rising consumer confidence, with sales hitting a new monthly record high. However, car sales data didn't help car makers, as General Motors Co.(GM) and Ford Motors Co.(F) fell more than 1.5%.

Analysts suggested that Fed speakers' comments that a Fed meeting next month may still deliver a rate increase unnerved some investors. Cleveland Fed President Loretta Mester (http://www.marketwatch.com/story/feds-mester-warns-that-delaying-interest-rate-hikes-may-backfire-2016-04-01)said waiting for markets to calm down before raising interest rates may backfire and just lead to more volatility. Mester is a voting member of the policy-setting Federal Open Market Committee this year.

Movers and shakers: Energy and materials companies sold off sharply as crude oil prices plunged, settling 2.5% lower at $43.65 a barrel (http://www.marketwatch.com/story/crude-oil-slammed-13-as-supply-glut-fears-return-2016-05-03).

Among the top S&P 500 decliners were Chesapeake Energy Corp(CHK) and Freeport-McMoRan, Inc.(FCX) down 12% and 11% respectively.

Shares of Estée Lauder Cos. (EL) tumbled 4% as investors focused on the cosmetic company's restructuring measures, including job cuts, and not its better-than-expected profit growth.

Pfizer Inc.(PFE) jumped 2.7% after the drugmaker's first-quarter earnings beat forecasts (http://www.marketwatch.com/story/pfizers-stock-surges-after-results-beat-expectations-outlook-raised-2016-05-03).

Clorox Co.(CLX) advanced 2% after the household products company beat on profit and lifted its 2016 earnings outlook.

Molson Coors Brewing Co.(TAP) shares rose 1.6% after better-than-expected earnings.

Other markets: Chinese stocks ended firmly higher (http://www.marketwatch.com/story/china-stocks-rise-after-president-xi-jinpings-verbal-support-for-market-2016-05-03), as investors appeared to welcome President Xi's call late last Friday -- after markets had closed -- to maintain a "healthy development of the stock market." Chinese markets were closed for trade on Monday for a holiday.

European markets closed lower across the board (http://www.marketwatch.com/story/european-stocks-slammed-as-euro-jumps-banks-sag-2016-05-03), with a strong euro and weak bank earnings zapping investor confidence.

Gold gave up earlier gains to settle down 0.3% at $1,291.80 an ounce, with some analysts suggesting profit-taking after days of gains.

(END) Dow Jones Newswires

May 03, 2016 16:30 ET (20:30 GMT)

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