TWODY Taylor Wimpey PLC (PK)

By Riva Gold and Akane Otani 

U.S. stocks slumped Tuesday, reversing course after their biggest weekly gain of the year, as crude oil prices tumbled and government bond yields plumbed record lows.

After initial losses following the U.K. vote to leave the European Union, global stocks rebounded, with the S&P 500 and the Dow Jones Industrial Average both climbing more than 3% last week. Major U.S. indexes pared those gains Tuesday, with some investors and analysts questioning whether the previous week's bounceback had been exaggerated.

Shares of commodity-linked companies led the day's losses as U.S. crude oil, hit by concerns about production increases and the impact of the U.K. vote, dropped 4.9% to $46.60 a barrel. Some analysts said the selloff in oil was a sign of fresh concerns about global economic strength.

The Dow Jones Industrial Average fell 109 points, or 0.6%, to 17841. The S&P 500 declined 0.7%, and the Nasdaq Composite Index lost 0.8%.

"It definitely feels like the markets woke up on the wrong side of the bed this morning," said Jason Bloom, director of research and strategy for commodities and alternatives at PowerShares. "Crude oil tends to be the epicenter of the global risk off sentiment."

Oil prices were pressured by data from Friday showing the number of U.S. rigs drilling for oil increased in the past week, as well as the strengthening dollar, which makes dollar-traded oil more expensive for foreign buyers. The WSJ Dollar Index advanced 0.7%.

Energy shares in the S&P 500 fell 1.9%, with shares of Southwestern Energy declining 10%, and Murphy Oil dropping 7.9%. The S&P 500 materials sector also declined, giving up 1.9%.

The declines in stocks came amid a rally in government debt, as the yield on the 10-year U.S. Treasury note settled at a record low of 1.367%. Yields move inversely to prices.

Financial shares in the S&P 500 slid 1.5% as yields fell and hopes for an increase in interest rates continued to dim. J.P. Morgan and Goldman Sachs shares were among the biggest decliners in the Dow industrials, falling 2.8% and 2.6% respectively.

Financial stocks have suffered among the biggest declines in the wake of the U.K. vote.

With questions lingering about global growth, the U.K.'s future relationship with the EU, and politics abroad, U.S. assets like the dollar and the 10-year Treasury look relatively attractive at the moment, said Jon Adams, senior investment strategist for BMO Global Asset Management.

"Uncertainty about policy is clearly driving the markets right now," Mr. Adams said.

In Europe, the Bank of England warned that the outlook for stability of the financial system had become "challenging" and took steps to bolster bank lending.

The British pound slumped to a 31-year-low against the dollar, recently trading at $1.3047, as analysts warned there was room for further falls in the U.K. currency. The FTSE 100, whose shares have benefited from a weaker pound, gained 0.4%. The Stoxx Europe 600 fell 1.7%.

As sterling falls, import-intensive companies that sell to the U.K. domestic market are likely to suffer, while those primarily reliant on export markets could benefit, she said.

Meanwhile, London's real-estate sector fell sharply after M&G Investments, the U.K. fund management arm of Prudential PLC, halted withdrawals from a U.K. property fund. It was the third major asset manager to do so since the U.K. voted to leave the EU.

Some analysts cautioned against becoming overly pessimistic about the global economy as a result of the Brexit. Investors shouldn't necessarily "get too concerned about global growth just because the U.K. is slowing," said Michael Metcalfe, head of macro strategy at State Street Global Markets.

A more meaningful slowdown from the Brexit vote would likely require possible political contagion in the eurozone or an acceleration of concerns about eurozone banks, Mr. Metcalfe said.

In commodities, gold for July delivery rose 1.5% to $1,356.40 an ounce, its highest settlement since March 18, 2014.

In Asia, Japan's Nikkei Stock Average fell 0.7%, snapping a six-session winning streak as the yen climbed against the dollar. The dollar was recently down 0.9% against the yen at Yen101.655.

Hong Kong's Hang Seng Index fell 1.5%, while Australian shares fell 1% after Australia's central bank left its cash rate unchanged.

The Shanghai Composite Index gained 0.6%, on hopes for state-owned enterprise reform and after a private gauge showed activity in China's services sector expanded at a faster rate in June.

--Nicole Friedman contributed to this story

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

July 05, 2016 16:27 ET (20:27 GMT)

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