Stocks dropped sharply on Tuesday as commodity shares were hit by indications China's economic growth may be slowing and by mounting uncertainty over the Federal Reserve's assessment of the U.S. economy, due later in the session.

The S&P 500 <.SPX> dipped below its 200-day moving average, with commodity and energy stocks as the biggest decliners on the index. China's July imports data showed a slower-than-expected growth, signaling the world's third-largest economy may be losing its steam.

China is certainly the global growth engine for almost all parts of the world, especially to the United States. Their macro data is influencing the psychology of investors of all assets here, said Craig Peckham, equity trading strategist at Jefferies & Co in New York.

Other data showed U.S. non-farm productivity unexpectedly dropped in the second quarter, the first decline since late 2008, adding selling pressure on equities.

The S&P 500 Index's 200-day moving average, now at 1,115.50, is a widely followed technical signal, and a close below it could indicate a turnaround in market momentum.

The Dow Jones industrial average <.DJI> was down 104.64 points, or 0.98 percent, at 10,594.11. The Standard & Poor's 500 Index <.SPX> was down 11.91 points, or 1.06 percent, at 1,115.88. The Nasdaq Composite Index <.IXIC> was down 32.07 points, or 1.39 percent, at 2,273.62.

Speculation has been growing about whether the Fed will send a clear signal it is prepared to print more money to support a faltering U.S. economic recovery, if necessary. The Fed will release a statement from the meeting at around 2:15 p.m. EDT.

Investors are bracing for a number of scenarios: While more easy money from the Fed could encourage investors to buy stocks, a more cautious forecast from the central bank, whose outlook has still been for a moderate recovery, may heighten concerns that the economic growth may be losing its steam.

A mere acknowledgment of a blip might also disappoint investors who have been betting the Fed would make a more concrete move, such as buying bonds to pull down market rates.

Steve Goldman, market strategist at Weeden & Co, said the Fed will not make significant changes on its policy, but it might build a foundation for a possible stimulus in a few months if the economy continues to show signs of slowing growth, in which case the market would see a sign of relief.

In recent days, the market has reacted to the possibility of additional action from the Fed to revive the economy, especially after Friday's weaker-than-expected jobs report for July.

The S&P materials index <.GSPM> was down 1.7 percent and the energy index <.GSPE> was off 1.3 percent.

On the blue-chip index, Alcoa Inc fell 2.7 percent to $11.34 and Exxon Mobil Corp dropped 1.2 percent to $61.70.

The CBOE volatility index <.VIX>, Wall Street's yardstick of investor anxiety, rose 7.5 percent to 23.81.

(Editing by Padraic Cassidy)