US STOCKS-Wall Street plunges on fears Trump tariffs to trigger recession

Updates to early-afternoon trade

By David French

April 3 (Reuters) - U.S. stocks sank on Thursday, with the bloodbath engulfing megacap technology names and small companies alike, as President Donald Trump's sweeping tariffs on major U.S. trade partners ignited fears of an all-out trade war and a global economic recession.

Investors fled from risky assets, seeking the safety of government bonds, after Trump slapped a 10% tariff on most U.S. imports and much higher levies on dozens of other countries.

The tariffs, poised to disrupt the global trade order, highlight a stark shift from just a few months ago when the promise of business-friendly policies under the Trump administration propelled U.S. stocks to record highs.

Investors sold positions to reflect the new economic reality, with concerns about how other countries would react to Trump's Rose Garden proclamations.

China vowed retaliation, as did the European Union, which faces a 20% duty. South Korea, Mexico, India and several other trading partners said they would hold off for now as they seek concessions before the targeted tariffs take effect on April 9.

The coming days are expected to be volatile, as events unfold and the full effect of Trump's economic actions start to feed through into the wider economy. The CBOE Volatility index .VIX, known as Wall Street's fear gauge, touched a three-week high at 27.30 points.

"I think the market is over-reacting. They are seeing it as one side: it's going to slow down the economy, and put inflationary pressures on," said Jim Elios, chief investment officer of Elios Financial Group.

"But I think this is the first round of negotiations with these nations."

At 01:47 p.m. EDT, the S&P 500 .SPX lost 213.52 points, or 3.77%, to 5,457.45 points, while the Nasdaq Composite .IXIC slumped 857.54 points, or 4.87%, to 16,743.50. The Dow Jones Industrial Average .DJI fell 1,223.58 points, or 2.90%, to 41,001.74.

High-flying technology stocks suffered big declines after pushing Wall Street to record highs in recent years.

Apple AAPL.O sank 8.8%, reeling from an aggregate 54% tariff on China, the base for much of the iPhone maker's manufacturing. Nvidia NVDA.O slumped 6.5% and Amazon.com AMZN.O dropped 7.6%.

U.S. stocks have lost ground since Trump took office in January, with the S&P 500 and the Nasdaq .IXIC dropping 10% from record highs last month, marking a correction, as investors priced in the economic damage from the tariffs.

Traders are ramping up expectations for the Federal Reserve to cut interest rates four times this year, starting with a quarter-point cut in June.

That heightens the significance of Friday's payrolls data and Fed Chair Jerome Powell's speech the same day, which could offer crucial insights into the U.S. economy's health and the future path of interest rates.

Retailers were hit hard, with Nike NKE.N dropping 12.2% and Ralph Lauren RL.N falling 15.9% on a raft of new tariffs on major production hubs including Vietnam, Indonesia and China.

Big banks such as Citigroup C.N and Bank of America BAC.N, which are sensitive to economic risks, fell more than 9% each. JPMorgan Chase & Co JPM.N lost 5.6%.

The U.S. small-cap Russell 2000 index .RUT tumbled 5.8%, underscoring concerns about the health of the domestic economy.

Exxon Mobil XOM.N and Chevron CVX.N fell 4% and 5.1%, respectively, as crude prices LCOc1, CLc1 slumped 6.7% on the tariffs and OPEC+ speeding up output hikes.

Consumer staples .SPLRCS was one of the few bright spots, rising 0.8%. The sector is traditionally considered a defensive play, but it was also buoyed on Thursday by Lamb Weston LW.N, which gained 10% after reporting earnings.

(Reporting by Sruthi Shankar and Pranav Kashyap in Bengaluru and David French in New York; Additional reporting by Nupur Anand; Editing by Saumyadeb Chakrabarty, Anil D'Silva, Shounak Dasgupta and Richard Chang)

((sruthi.shankar@thomsonreuters.com))