By Niket Nishant and Sukriti Gupta (Reuters) -Wall Street's calm was shattered on Friday after U.S. President Donald Trump rattled markets with the threat of a "massive increase" in tariffs on Chinese imports over a rare earths dispute, sending indexes tumbling and volatility spiking. In a Truth Social post, Trump also called off his planned meeting with China's President Xi Jinping in South Korea. He said Beijing had been sending letters to countries to tell them that it planned to impose export controls on every element of production related to rare earths. The sharp selloff in indexes disrupted a relatively quiet week for markets, which had been gaining on hopes of dovish monetary policy, and underscored how sensitive investor sentiment remains to trade uncertainty. A fresh flare-up in U.S.-China trade tensions could weigh on global growth and cloud the outlook for corporate America, which is already navigating higher costs. "He's caught the market off guard again and he's thrown more question marks into it," said Robert Pavlik, senior portfolio manager at Dakota Wealth. At 12:11 p.m. ET, the Dow Jones Industrial Average fell 554.58 points, or 1.20%, to 45,803.84, the S&P 500 lost 105.34 points, or 1.56%, to 6,629.77 and the Nasdaq Composite lost 471.76 points, or 2.05%, to 22,552.86. All three indexes were on track for weekly declines if current levels hold. "We finally got through the worst of the tariff concerns, and now we find ourselves once again faced with another round of them," said Steve Sosnick, chief market analyst at Interactive Brokers. The S&P 500 tech sector lost 2%. Financials fell 1.4% on the S&P 500, while energy stocks declined 1.8%. The Philadelphia SE Semiconductor index dropped 3.7%, among the worst hit after Trump's announcement. China produces over 90% of the world's processed rare earths and rare earth magnets, which are critical for products ranging from electric vehicles and aircraft engines to military radars. Renewed tensions between the two largest global economies could trigger major supply chain disruptions, particularly for companies in technology, EV and defense space. The CBOE volatility index, investors' fear gauge, spiked to the highest in a month. U.S.-listed shares of Chinese companies dropped sharply, with heavyweights Alibaba Group Holding, JD.com Inc and PDD Holdings down between 3.9% and 6.7%. Qualcomm fell 4.5% after China's market regulator said the country had launched an antitrust investigation into the semiconductor manufacturer over its acquisition of Israel's Autotalks. Separately, a preliminary reading of the University of Michigan's consumer sentiment index for October came in at 55, compared with the estimate of 54.2, according to economists polled by Reuters. Declining issues outnumbered advancers by a 2.73-to-1 ratio on the NYSE and by a 3.36-to-1 ratio on the Nasdaq. The S&P 500 posted 17 new 52-week highs and 12 new lows while the Nasdaq Composite recorded 93 new highs and 82 new lows. (Reporting by Niket Nishant, Sukriti Gupta, Purvi Agarwal and Johann M Cherian in Bengaluru; Editing by Anil D'Silva and Shilpi Majumdar)
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