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VIX touches one-month high

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Indexes erase weekly gains

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U.S.-listed shares of Chinese firms tumble

(Updates to market close)

By Stephen Culp

NEW YORK, Oct 10 (Reuters) - Wall Street tanked on

Friday after U.S. President Donald Trump rattled markets by

unleashing a string of bellicose threats against China after

Beijing tightened its rare earth restrictions.

In a post on Truth Social, Trump said he is weighing a

"massive" tariff increase on Chinese imports and said there is

no reason to meet with China's President Xi Jinping in two weeks

as planned, adding that there are "many other countermeasures"

under consideration.

The tirade shocked markets and threatened further damage to

already strained relations between the world's two largest

economies.

All three major U.S. stock indexes sold off sharply in the

wake of Trump's remarks, suffering their largest single-day

percentage drop in months. The broad selloff erased the

possibility of the indexes notching weekly gains, despite having

reached record closing highs in recent sessions.

"The second largest economy and the first largest economy

are arguing again, and we're seeing a sell first, ask questions

later mentality to end the week," said Ryan Detrick, chief

market strategist at Carson Group in Omaha. "President Trump's

post did truly come out of nowhere, which opened the door for

some extreme volatility."

"And it's important to remember we haven't had this level of

volatility in a long time," Detrick added. "One could argue we

were due for some spookiness this October."

Trump's erratic trade policies have rattled markets since

his April 2 "Liberation Day" tariff announcement, with on-again,

off-again trade negotiations, causing turbulence across asset

classes.

According to preliminary data, the S&P 500

lost 182.34 points, or 2.71%, to end at 6,552.77 points,

while the Nasdaq Composite lost 820.20 points, or 3.56%,

to 22,207.28. The Dow Jones Industrial Average

fell 873.58 points, or 1.88%, to 45,480.04.

The Philadelphia SE Semiconductor Index was among the

hardest-hit sectors in the wake of Trump's announcement.

China produces over 90% of the world's processed rare earths

and rare earth magnets, which are critical for products ranging

from electric vehicles and aircraft engines to military radars.

Renewed tensions between the two largest global economies

could trigger major supply chain disruptions, particularly for

the technology, electric vehicle and defense industries.

The CBOE Volatility Index, viewed as a reflection of

market anxiety, touched its highest level in a month.

U.S.-listed shares of Chinese companies, including

heavyweights Alibaba Group Holding, JD.com Inc

and PDD Holdings ( PDD ) closed at steep losses.

Qualcomm ( QCOM ) slid after China's market regulator said

the country had launched an antitrust investigation into the

semiconductor manufacturer over its acquisition of Israel's

Autotalks.

The U.S. government is currently in its 10th day of shutdown

as a congressional impasse has so far yielded few signs of

progress or serious negotiation. This has resulted in a data

blackout, with official government economic indicators postponed

for the time being.

Still, data from independent sources continues unabated. The

University of Michigan released its preliminary take on October

consumer sentiment, which is drifting along near historic lows

as high prices and weakening job prospects remain at the

forefront of consumer worries.

In the absence of official data, investors look to the U.S.

Federal Reserve for clues regarding near-term interest rate

cuts.

Fed Governor Christopher Waller said that while private

employment data continues to show labor market weakness, the

central bank should act with caution when reducing the Fed funds

target rate as it evaluates the economy.

St. Louis Fed President Alberto Musalem echoed that

sentiment, saying that another rate cut could be warranted as

insurance against a weakening labor market. "I believe that we

have to tread with caution" before monetary policy becomes too

accommodative, he said.

A spate of large financial firms - including JPMorgan Chase ( JPM )

, Goldman Sachs ( GS ), Citigroup ( C/PN ), and Wells Fargo ( WFC )

- is set to release quarterly results on Tuesday,

marking the unofficial launch of third-quarter earnings season.

Analysts currently expect third-quarter S&P 500 earnings growth

of 8.8% year-on-year, on aggregate, compared with annual growth

of 13.8% last quarter and 9.1% in Q3 2024, according to LSEG

data.