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* U.S. factory sector contracts for first time since 2016
* China, U.S. kick off new round of tariffs
* Tech stocks weigh most on S&P 500
* Casino stocks under pressure from weak Macau data
* Indexes fall: Dow 1.48%, S&P 500 1.06%, Nasdaq 1.11% (Updates to open)
By Uday Sampath Kumar
Sept 3 (Reuters) - Wall Street fell on Tuesday after data showed U.S. manufacturing sector contracted for the first time since 2016 in August, adding to fears that a protracted U.S.-China trade war could tip the world’s largest economy into recession.
The Institute for Supply Management said its index of national factory activity decreased to 49.1, compared with a reading of 51.1 estimated by analysts polled by Reuters.
The weak data also weighed on U.S. Treasury yields, with the benchmark 10-year yield falling to its lowest since July 2016. Shares of banks, which typically come under pressure in a low interest rate environment, slid 2%.
Trade-sensitive industrials slipped 1.77%, while technology stocks fell 1.38%.
In an escalation of their trade war, the United States on Sunday began imposing 15% tariffs on a variety of Chinese goods, and China began imposing new duties on U.S. crude oil.
The tariffs that went into effect on Sunday are making investors increasingly cynical towards the trade war, Peter Cardillo, chief market economist at Spartan Capital Securities in New York said.
The S&P 500 index fell 1.8% in August, its biggest monthly drop since May, after escalating trade tensions and the inversion of a key part of the U.S. yield curve, seen as a sign of recession, drove investors toward safe-haven assets.
However, trade tensions were dialed down last week following signals that Beijing and Washington would meet in September for talks, but Bloomberg reported on Monday that the two sides were yet to agree on a date for the planned meeting.
The energy sector tumbled nearly 2% and was the biggest loser among the 11 major S&P sectors, as rising OPEC and Russian crude output drove a 4% slump in oil prices.
Chipmakers, which draw a large portion of their revenue from China, also fell, with the Philadelphia Semiconductor index off 2.06%.
At 10:16 a.m. ET the Dow Jones Industrial Average was down 391.94 points, or 1.48%, at 26,011.34, the S&P 500 was down 30.94 points, or 1.06%, at 2,895.52 and the Nasdaq Composite was down 88.11 points, or 1.11%, at 7,874.77.
U.S. casino operators felt the brunt of slowing economic growth in China as gambling hub Macau posted an 8.6% decline in August casino revenue, sending shares of Wynn Resorts Ltd , Las Vegas Sands Corp and MGM Resorts International down between 3% and 4%.
Declining issues outnumbered advancers for a 2.47-to-1 ratio on the NYSE and for a 2.65-to-1 ratio on the Nasdaq.
The S&P index recorded 19 new 52-week highs and four new lows, while the Nasdaq recorded 25 new highs and 76 new lows. (Reporting by Uday Sampath in Bengaluru; Editing by Anil D’Silva and Arun Koyyur)