Wall Street gripped by trade war fears

(Reuters) - The three major U.S. indexes fell more than 1.5 percent on Thursday, on track for their steepest drop in six weeks, gripped by the growing threat of a global trade war.

President Donald Trump was expected to lay the foundation for tariffs on Chinese imports worth around $50 billion, a move likely to trigger retaliation from Beijing. The presidential memorandum is expected to be signed at 12:30 p.m. ET.

China is preparing a range of responses and has threatened to retaliate by hitting U.S. agricultural exports.

"The markets should dislike the possibility of a trade war between United States and other countries," said Stephen Wood, chief market strategist for Russell Investments in New York.

"However, there's a lot of negotiation taking place there. Suddenly we're seeing smaller numbers and exemptions."

Still, major industrials Boeing (NYSE:BA) and Caterpillar (NYSE:CAT) fell more than 3.5 percent.

Nine of the 11 major S&P sectors were in the red, with five of them down more than 2 percent. Only the interest-rate sensitive utilities and real estate sectors were higher after the Federal Reserve raised interest rates, as was widely expected, on Wednesday.

The Fed forecast at least two more hikes for 2018, also as expected. But nearly half of the policy makers projected three more this year and the pace of increases is seen quickening in the next two years, ending the years-long easy-money policy.

"What we've got is a strong risk-off trade, which I think is a follow on to the comments from (Fed Chair Jerome) Powell and some of the Facebook (NASDAQ:FB) issues," said Paul Norte, portfolio manager at Kings view Asset Management in Chicago.

"Investors are looking to take some money off the table."

At 11:50 a.m. ET, the Dow Jones Industrial Average fell 446.9 points, or 1.81 percent, to 24,235.41. The S&P 500 lost 44.65 points, or 1.65 percent, to 2,667.28 and the Nasdaq Composite dropped 135.21 points, or 1.84 percent, to 7,210.08.

The Cboe Volatility Index, the most widely followed barometer of expected near-term volatility in the S&P 500, was up 3.25 points at 21.11, after touching a three-day high of 21.24.

U.S. treasury prices gained as the fears of a trade war sent investors to safe-haven investments.

The S&P 500 technology index, the best performing sector over the past year, fell 1.63 percent. Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) dropped 0.9 percent to 3 percent.

Facebook shares fell 1.5 percent, reversing course after brief gains early in the session.

AbbVie slumped about 11 percent after the drugmaker said it would not seek accelerated approval for its experimental lung cancer treatment based on results from a mid-stage study.

Declining issues outnumbered advancers on the NYSE for a 2.79-to-1 ratio, and for a 3.05-to-1 ratio on the Nasdaq.