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Indexes down: Dow 1.14%, S&P 500 1.71%, Nasdaq 2.34%

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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 afternoon)

By Stephen Culp

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

Friday after President Donald Trump rattled markets by

unleashing a string of bellicose threats against China in

retaliation for Beijing tightening 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, erasing the likelihood that the Nasdaq or

the S&P 500 would register weekly gains, despite having touched

record closing highs in recent sessions.

"We were in pretty prime position for something like this to

really send the market lower that obviously a re-escalation with

China is bad news," said Ross Mayfield, investment strategy

analyst at Baird in Louisville, Kentucky. "(It's) unexpected.

The lack of news in recent months seemed to point towards some

sort of continued de-escalation or trade deal with China.

Clearly this unravels some of that."

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.

The Dow Jones Industrial Average fell 530.63 points, or

1.14%, to 45,829.11, the S&P 500 lost 115.29 points, or

1.71%, to 6,619.82 and the Nasdaq Composite lost 539.47

points, or 2.34%, to 22,485.16.

The Philadelphia SE Semiconductor Index .SOX dropped 3.7%, among

the worst hit after 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

companies in technology, EV and defense space.

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 dropped sharply,

with heavyweights Alibaba Group Holding, JD.com Inc

and PDD Holdings ( PDD ) down between 6.4% and 8.2%.

Qualcomm ( QCOM ) fell 5.6% 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.

Declining issues outnumbered advancers by a 3.5-to-1 ratio

on the NYSE. There were 202 new highs and 150 new lows on the

NYSE.

On the Nasdaq, 890 stocks rose and 3,775 fell as declining

issues outnumbered advancers by a 4.24-to-1 ratio.

The S&P 500 posted 18 new 52-week highs and 17 new lows

while the Nasdaq Composite recorded 96 new highs and 117 new

lows.