Wall Street suffered its worst slide of 2010 on Wednesday as investors worried that lending restrictions in China could hurt the global economic recovery, while a conservative outlook from IBM dented recent optimism about the technology sector.

Official media and banking sources said Chinese authorities instructed some major banks to curb their lending over the rest of this month after an early burst of credit.

Signals that China may curb its economic expansion hurt shares of commodity-related companies, dragging the S&P materials sector <.GSPM> down 2.3 percent.

The Chinese tightening is having a spillover effect on sentiment here, said Michael James, senior trader at Wedbush Morgan in Los Angeles.

International Business Machines Corp fell 3.8 percent to $129.07. An analyst pointed out that the company's earnings per share outlook for 2010 implies a slowdown in EPS growth compared to recent years.

IBM reported a good number, but I don't think it was good enough relative to expectations, and tech is in general selling off, said James.

The Dow Jones industrial average <.DJI> lost 194.98 points, or 1.82 percent, to 10,530.45. The Standard & Poor's 500 Index <.SPX> fell 19.18 points, or 1.67 percent, to 1,131.05. The Nasdaq Composite Index <.IXIC> dropped 45.57 points, or 1.96 percent, to 2,274.83.

The Dow and the Nasdaq had their largest daily percentage losses since late October and the S&P 500 had its biggest drop since late November, a day after reaching new multi-month highs on bets the Democrats would lose a key seat in Congress.

There was an expectation in the market yesterday that if the Republican candidate was victorious in (the) Massachusetts (senatorial race), it would be a net positive for the market, Wedbush Morgan's James said.

A lot more proof is going to be needed for the market to resume its uptrend because people are more in the mindset of selling the news right now.

Healthcare stocks, which led Tuesday's advance on expectations that an overhaul of the healthcare system could find new hurdles in Congress, mostly declined on Wednesday. The Morgan Stanley healthcare payor index <.HMO> dropped 2.4 percent and an index of pharmaceutical companies <.DRG> fell 1.1 percent.

On a busy earnings day for U.S. banks, Wells Fargo & Co and U.S. Bancorp reported better-than-forecast quarterly earnings, helped by recent acquisitions, while larger rival, Bank of America Corp, got a boost from Merrill Lynch.

Bank of America , the top U.S. bank by assets, reported a wider-than-expected loss, but said its credit problems were beginning to stabilize.

U.S. Bancorp shares rose 2.3 percent to $25.05 and Bank of America gained 0.6 percent to $16.42. The KBW bank index <.BKX> rose 1 percent.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)