By Caroline Valetkevitch
NEW YORK (Reuters) -- U.S. stocks dropped on Tuesday as a selloff in commodities dragged down materials shares and Volkswagen suppliers' shares dropped following the German carmaker's emissions scandal.
S&P materials, down 1.8 percent, led the decline for the S&P 500, but the selloff was broad-based, with all 10 major sectors lower.
More worries about slower growth in China pushed commodities to two-week lows, with copper prices and industrial metals leading losses. U.S. crude oil also settled lower.
Shares of Volkswagen suppliers BorgWarner, Honeywell and Delphi Automotive fell after the German carmaker admitted to cheating on vehicle emission tests. BorgWarner shares were down 7.6 percent at $39.37, while Honeywell fell 1.7 percent to $96.04 and Delphi lost 3.6 percent to $74.44.
Biotech stocks fell for a second day after Democratic presidential candidate Hillary Clinton said she would propose a $250 monthly cap on prescription drugs. The Nasdaq Biotech Index was down 1.7 percent.
"It's China. It's the Fed. It's slowing global growth. The news on Volkswagen is overhanging the auto industry. There is a bit of a bubble in the healthcare area," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
The Dow Jones industrial average fell 179.72 points, or 1.09 percent, to 16,330.47, the S&P 500 lost 24.23 points, or 1.23 percent, to 1,942.74 and the Nasdaq Composite dropped 72.23 points, or 1.5 percent, to 4,756.72.
The Fed's decision last week to keep rates near zero has left investors guessing when the central bank will make its big move, increasing volatility in the market.
Atlanta Fed President Dennis Lockhart said on Monday a rate hike later this year was still possible. Lockhart is scheduled to speak again later on Tuesday. Fed Chair Janet Yellen speaks on Thursday.
The CBOE Volatility index, Wall Street's fear gauge, jumped 11.4 percent to 22.44, above its long-term average of 20.
Goldman Sachs fell 1.9 percent to $179.83 and was the biggest drag on the Dow after Chief Executive Lloyd Blankfein said he had a "highly curable" form of lymphoma.
Declining issues outnumbered advancing ones on the NYSE by 2,442 to 623, for a 3.92-to-1 ratio on the downside; on the Nasdaq, 2,171 issues fell and 636 advanced for a 3.41-to-1 ratio favoring decliners.
The S&P 500 posted 1 new 52-week high and 35 lows; the Nasdaq recorded 16 new highs and 118 lows.
About 7.3 billion shares changed hands on U.S. exchanges, below the roughly 8.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.
(Additional reporting by Tanya Agrawal in Bengaluru; Editing by Savio D'Souza and Nick Zieminski)