Stocks fell sharply Tuesday after a surprise rate hike from China's central bank and mixed quarterly earnings reports led to heavy selling in technology, materials and energy stocks. The dollar rose while gold and oil fell amid concern that any move by China to curb its growth could slow the pace of global recovery.
The blue-chip Dow Jones Industrial Average ($INDU) lost 165 points, or 1.5%, to close at 10,979. The tech-heavy Nasdaq Composite ($COMPX) dropped 44 points, or 1.9%, to settle at 2,437. The broader S&P 500 ($INX) shed 19 points, or 1.6%, to close at 1,166.
U.S. equities followed European markets lower after China raised its key interest rate for the first time since 2007 in order to control inflation in a potentially overheating economy. China's gross domestic product grew more than 10% in the second quarter.
The U.S. Dollar Index, which measures the greenback against a basket of currencies, had its steepest increase in two months.
Gold fell $39 an ounce to settle at $1,333 on the Comex division of the New York Mercantile Exchange (CME), while oil slipped $3.63 to $79.45 a barrel.
As the engine of the global recovery, China's new policy especially hurt energy, commodities and materials stocks. Dow components ExxonMobil (XOM) and Chevron (CVX) each fell 2%. Alcoa (AA) lost 3.7% and Caterpillar (CAT) lost nearly 2%.
International Business Machine (IBM) led the Dow lower after investors found fault with the company's quarterly earnings report late Thursday. Shares dropped 3.7% on the day. Disappointing earnings news from Apple (AAPL) late Thursday and the loss of a key executive at Microsoft (MSFT) also weighed on tech stocks.
Financials, meanwhile, held up relatively well, even after more mixed earnings reports. Bank of America (BAC), the nation's largest bank by assets, reported a surprise quarterly loss early Tuesday. Separately, the firm is facing pressure to buy back $47 billion in bad mortgages packaged by Countrywide, according to a media report. The Dow component fell 4.5%.
On the other side of the ledger, Goldman Sachs (GS) reported sharp declines in third-quarter earnings and revenue, hurt by slower trading activity over the summer, but its profits still easily exceeded analysts' average forecast. Shares rose 2% in a down market.