Wall Street down 1% as commodity prices slide

NEW YORK (REUTERS) - Wall Street fell more than 1 per cent in early trading on Tuesday due to a fall in oil and copper prices on concerns about the outlook for the Chinese economy.

Copper prices hit two-week lows, while oil was down about 2 per cent. The Chinese government's efforts to stimulate growth by easing fiscal and monetary policy have failed to calm nerves.

U.S. stocks ended higher on Monday, rebounding from losses late last week with help from Apple and financial shares, but a drop in biotech shares limited the advance.

However, trading remains volatile as investors try to gauge when the Federal Reserve will raise interest rates.

The CBOE Volatility index, known as the "fear gauge", jumped 12 per cent to 22.52, above its long-term average of 20. "It was an extraordinarily quiet night of news and that is making the (European and U.S.) weakness even more frustrating (the selloff is very inexplicable)," J.P. Morgan said in a note issued before the start of trading.

The Fed last week kept rates at near-zero levels, citing the turbulence in a tightly linked global economy, including slowing growth in China.

Atlanta Fed President Dennis Lockhart said on Monday a rate hike later this year was still possible. "The market is fragile as it is," said Art Hogan, chief market strategist at Wunderlich Securities in New York. "The volatility will continue until we get some clarity from the Fed and China." At 9:48 a.m. ET (9:48 pm Singapore time) the Dow Jones industrial average was down 176.58 points, or 1.07 per cent, at 16,333.61. The S&P 500 was down 21.27 points, or 1.08 per cent, at 1,945.7 and the Nasdaq composite was down 57.42 points, or 1.19 per cent, at 4,771.54.

All 30 Dow components were down and all 10 major S&P sectors were lower.

The materials index's 1.61 per cent fall led the decliners. Dow Chemical declined 1.7 per cent, while LyondellBasell dropped 2.1 per cent.

The dollar hit an almost two-week high against a basket of currencies on Tuesday after comments from Fed officials revived expectations that rates could still be hiked later this year.

Lockhart, a voting member of the Federal Open Market Committee, is scheduled to speak again later in the day. Fed Chair Janet Yellen speaks on Thursday.

European shares fell led lower by mining companies and a further fall in shares of German carmaker Volkswagen , which has admitted cheating on vehicle emission tests.

Shares of Volkswagen supplier BorgWarner were down 6.5 per cent at US$39.87.

Goldman Sachs fell 1.8 per cent to US$180.16 after Chief Executive Lloyd Blankfein said he had a "highly curable" form of lymphoma.

Miner and energy producer Freeport McMoRan declined 6.4 per cent to $9.86.

Declining issues outnumbered advancers on the NYSE by 2,437 to 325. On the Nasdaq, 1,934 issues fell and 469 advanced.

The S&P 500 index showed one new 52-week high and 29 new lows, while the Nasdaq recorded six new highs and 63 new lows.