(Corrects to say softer instead of softer-than-expected Chinese factory data in first paragraph)
NEW YORK - Stocks tumbled 2 percent and turned negative for the year on Wednesday as softer Chinese factory data and a weaker outlook from the Federal Reserve increased worries about the recovery.
The benchmark S&P 500 index was on track for its biggest daily percentage drop since July 16, with the S&P materials index <.GSPM> down 3.2 percent. An index of semiconductors <.SOXX> dropped 4.5 percent.
Volatility jumped, suggesting investors see further choppiness in the market.
China reported a slowdown in factory output, while on Tuesday the Federal Reserve downgraded its outlook on the economy. It also said it would take new steps to offset a weak recovery.
The Fed highlighted growth worries and signaled it would do more to support the economy if necessary.
The Fed wanted to be reassuring and not cause a panic and let the system work through on some of these issues on its own. I think that's a wise course of action, said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio.
Still, he said, As investors look forward, it's hard to see anything on the horizon that will be reassuring.
The Dow Jones industrial average <.DJI> was down 231.43 points, or 2.17 percent, at 10,412.82. The Standard & Poor's 500 Index <.SPX> was down 29.24 points, or 2.61 percent, at 1,091.82. The Nasdaq Composite Index <.IXIC> was down 66.62 points, or 2.93 percent, at 2,210.55.
The three major indexes once again turned negative for the year. The Nasdaq was down 2.7 percent for the year, while the S&P 500 was down 2.1 percent and the Dow was down 0.2 percent.
All of the S&P's sectors were negative on the day, and, on the New York Stock Exchange, decliners beat advancers by 13 to 2.
China's news added to the view of weaker global growth.
We're expecting China to help the U.S. economy and obviously if China is slowing, that's not going to be as much of a factor, said Alan Lancz, president, Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.
Among top decliners was Cisco Systems
According to Goldman Sachs derivatives strategists, as of Tuesday's close, options are pricing in a 5 percent earnings day move, but (Cisco) shares have a median realized earnings-day move of less than plus or minus 3 percent over the past eight quarters.
Also on the Nasdaq, shares of semiconductor company Cree Inc
While stocks were falling, a market volatility index <.VIX> rose 16.3 percent.
In what some chartists see as a sell signal, the S&P 500's moving average convergence-divergence or MACD line dipped below its signal line. At the same time, momentum dropped to just below its zero line, strengthening the bearish alert.
Near-term support is found at 1,088, the July 30, intraday low, and then at 1,057, the July 20 low.
(Reporting by Caroline Valetkevitch; Additional reporting by Angela Moon, Ryan Vlastelica and Rodrigo Campos in New York and Doris Frankel in Chicago; Editing by Kenneth Barry)