* Trump’s new threat follows last week’s tit-for-tat tariffs
* Bond yields tumble as U.S. Treasuries in demand
* Boeing, Caterpillar lead Dow lower
* Indexes down: Dow 1.38 pct, S&P 0.73 pct, Nasdaq 0.84 pct (Updates to early afternoon)
By Medha Singh
June 19 (Reuters) - U.S. stocks fell on Tuesday and the Dow Jones Industrial Average turned negative for the year as a sharp escalation in U.S.-China trade dispute rattled the markets.
President Donald Trump, in an unexpectedly swift and sharp move, threatened to impose a 10 percent tariff on another $200 billion of Chinese goods and Beijing warned it would retaliate.
Trump said his move followed China’s decision to raise tariffs on $50 billion in U.S. goods, which came after U.S. announced similar tariffs on Chinese goods on Friday.
“The expanding trade war is turning into reality and as a result you have stocks under pressure. Except a few defensives that are outshining, there is real nervousness within the market,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
At 12:56 p.m. ET, the Dow Jones Industrial Average was down 343.64 points, or 1.38 percent, at 24,643.83, the S&P 500 was down 20.16 points, or 0.73 percent, at 2,753.59 and the Nasdaq Composite was down 65.11 points, or 0.84 percent, at 7,681.92.
The Dow remained below its 50-day moving average but regained its 100-day moving average, key technical indicators of short- and near-term momentum.
“If we manage to recover some of these losses by the end of the day, it’s a huge win because it would show that the market only remains mildly annoyed and it’s not pricing in a bigger concern,” said Michael Antonelli, managing director, institutional sales trading at Robert W. Baird in Milwaukee.
The sell-off was broad, with 24 of the 30 Dow components in the red and seven of the 11 major S&P sectors lower.
The CBOE Volatility Index, commonly known as Wall Street’s fear gauge, hit a near three-week high of 14.68 points, before easing to 13.95.
Shares of Boeing, which has acted as a proxy for trade war tensions with China as it is the single largest U.S. exporter to the country, fell 3.9 percent, weighing the most on the Dow. Construction equipment maker Caterpillar closely followed with a 3.8 percent drop.
The declines weighed on the S&P industrials index, which fell more than 2 percent, the biggest one-day percentage drop in nearly two months.
Demand for safe havens saw yield on the 10-year benchmark U.S. Treasury drop to its lowest in more than two weeks.
Sectors seen as bond proxies due to their high dividend yields such as utilities, telecoms, consumer staples and real estate were higher.
Chipmakers, which depend on China for a large portion of their revenue, also slipped, with Intel down 1.5 percent.
The small-cap Russell 2000 index, whose components are relatively more insulated to a global trade war, was down 0.51 percent.
Tariff worries dragged FedEx Corp down 2.1 percent and weighed heavily on the Dow Jones Transport index. The package delivery company is expected to issue its quarterly report after the bell.
Declining issues outnumbered advancers for a 1.94-to-1 ratio on the NYSE and for a 1.71-to-1 ratio on the Nasdaq.
The S&P index recorded four new 52-week highs and four new lows, while the Nasdaq recorded 85 new highs and 39 new lows. (Reporting by Medha Singh in Bengaluru; Editing by Sriraj Kalluvila)