NEW YORK (REUTERS) - Wall Street stocks suffered their worst day since June on Tuesday, slumping in a broad decline as geopolitical uncertainty rose over a possible United States-led military strike by the West against Syrian President Bashar al-Assad's forces.
The S&P 500 closed under its 100-day moving average for the first time since June 24, a sign of weak near-term momentum. The day's fall extended recent declines on uncertainty over when the US Federal Reserve will start to slow its stimulative monetary policies.
Odds grew that a strike would occur against Mr Assad's forces for a chemical weapons attack against civilians as a number of nations and groups - including Britain, France, Canada and the Arab League - joined Washington in urging a firm response to Mr Assad. Adding to the tension, Russia has supported Syria's civil war.
"This (stocks) move is as much about the potential spillover effect in the region as it is the potential for a US strike,"said Mr Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, adding that because geopolitical risk had been "ratcheted up", portfolios would need to be reallocated away from riskier investments like stocks.
"Doing that in a market that was already acting sloppy is cause for further weakness," he said.
Investor nervousness was reflected in a jump of more than 20 per cent in the CBOE volatility index over the last two days. The uncertainty also lifted gold to a 15-week peak.
Western sources who attended a meeting in Istanbul between envoys of an alliance opposed to Mr Assad and the Syrian National Coalition said "action to deter further use of chemical weapons by the Assad regime could come as early as in the next few days".
Defence Secretary Chuck Hagel said US military forces in the region are "ready to go" should President Barack Obama order action against Syria.
About 80 per cent of companies traded on both the New York Stock Exchange and Nasdaq fell, while all 10 S&P 500 sectors ended down.
Financials and materials were the weakest of the day, with both falling about 2.5 per cent. Both groups are closely tied to the pace of economic growth, as are energy shares. However, losses in that group were offset by a 2.8 per cent rise in crude oil.
"The potential disruption of Middle East oil supply will not only provide support for commodities, but this is a sector that has underperformed, where valuations are compelling," said Mr Grohowski, who helps oversee US$175 billion (S$224 billion) in client assets in New York.
The Dow Jones industrial average was down 170.33 points, or 1.14 per cent, at 14,776.13. The Standard & Poor's 500 Index was down 26.30 points, or 1.59 per cent, at 1,630.48. The Nasdaq Composite Index was down 79.05 points, or 2.16 per cent, at 3,578.52.
Tuesday marked the biggest daily decline for the S&P since June 20. The benchmark index is now down 2.9 per cent in August, putting it on track for its worst month since May 2012.
Volume was light, with about 6.18 billion shares changing hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average of about 6.31 billion shares so far this year.
Goldman Sachs fell 3 per cent to US$153.23 a day after a source said the company lost tens of millions of dollars after a computer glitch led to a flood of erroneous options trades last week.
Shares of Tiffany & Co dipped 1 per cent to US$80.82 after it reported second-quarter sales that missed expectations, although the jeweller raised its full-year profit view on strong results in China.
Goodyear Tire and Rubber Co rose 2 per cent to US$19.01 as the S&P's biggest gainer after the company detailed a new master labour contract.
US regulators have asked Nasdaq OMX Group and NYSE Euronext to come up with a timeline of Thursday's three-hour trading disruption. But the rival exchange operators have been unable to agree on the details, according to several sources familiar with the situation Shares of Nasdaq OMX fell 2.3 per cent to US$29.94 while NYSE Euronext fell 1.2 per cent to US$41.81.