NEW YORK (Reuters) - U.S. stocks ended lower on Tuesday, with the tech-heavy Nasdaq veering near correction territory, as trade tensions escalated following U.S. President Donald Trump's new tariffs on Canada, Mexico and China.

The 25% tariffs on imports from Mexico and Canada, along with doubled duties on Chinese goods, took effect on Tuesday. China and Canada retaliated while Mexican President Claudia Sheinbaum vowed to respond likewise, without giving details.

The Nasdaq Composite ended lower after veering into correction territory during the session but pared losses in choppy trading. The index closed down 9.3% from its record closing high on December 16.

"Equity valuations have been very elevated and there's been yellow flags all over the horizon given moves to cut government spending," said Ben McMillan, chief investment officer at IDX Insights in Tampa, Florida. "Now on top of that, we have all this rhetoric around tariffs."

Shares in financials and industrials were the biggest losers among the benchmark S&P 500's 11 main sectors.

Citigroup and JPMorgan Chase & Co fell 6.2% and nearly 4%, respectively, sending the bigger banks index down 4.7%.

The CBOE market volatility index rose 3.20% to its highest since December 20.

"The fear here is that it's going to slow (economic) growth," said Adam Sarhan, CEO of 50 Park Investments in New York. "And when you have a slowdown in economic conditions, it's a situation where banks specifically make less money because fewer goods and services are traveling through the economy."

The Dow Jones Industrial Average fell 670.25 points, or 1.55%, to 42,520.99, the S&P 500 lost 71.57 points, or 1.22%, to 5,778.15 and the Nasdaq Composite lost 65.03 points, or 0.35%, to 18,285.16.

Car makers Ford and General Motors, which have vast supply chains across North America, fell 2.9% and 4.6%, respectively. The domestically focused Russell 2000 index dropped 1%.

Wall Street is really concerned, McMillan said. "The likelihood of tariffs will lead to higher prices and therefore lower spending."

Target shares fell 3% after the retailer forecast full-year comparable sales below estimates.

Best Buy slumped 13.3% after the electronics retailer issued a downbeat forecast, while Walgreens jumped as a report hinted that the pharmacy chain is closing in on a take-private deal by Sycamore Partners.

Declining issues outnumbered advancers by a 2.97-to-1 ratio on the NYSE. There were 86 new highs and 450 new lows on the NYSE.

The S&P 500 posted 41 new 52-week highs and 43 new lows while the Nasdaq Composite recorded 35 new highs and 595 new lows.

Total volume across U.S. exchanges was 18.42 billion shares, compared with the 20-day moving average of 15.87 billion shares.