(Corrects header) By Stephen Culp NEW YORK (Reuters) -Wall Street tanked on Friday after U.S. President Donald Trump rattled markets by unleashing a string of bellicose threats against China after Beijing tightened its rare earth restrictions. In a post on Truth Social, Trump said he is weighing a "massive" tariff increase on Chinese imports and said there is no reason to meet with China's President Xi Jinping in two weeks as planned, adding that there are "many other countermeasures" under consideration. The tirade shocked markets and threatened further damage to already strained relations between the world's two largest economies. All three major U.S. stock indexes sold off sharply in the wake of Trump's remarks, suffering their largest single-day percentage drop in months. The broad selloff erased the possibility of the indexes notching weekly gains, despite having reached record closing highs in recent sessions. "The second largest economy and the first largest economy are arguing again, and we're seeing a sell first, ask questions later mentality to end the week," said Ryan Detrick, chief market strategist at Carson Group in Omaha. "President Trump's post did truly come out of nowhere, which opened the door for some extreme volatility." "And it's important to remember we haven't had this level of volatility in a long time," Detrick added. "One could argue we were due for some spookiness this October." Trump's erratic trade policies have rattled markets since his April 2 "Liberation Day" tariff announcement, with on-again, off-again trade negotiations, causing turbulence across asset classes. According to preliminary data, the S&P 500 lost 182.34 points, or 2.71%, to end at 6,552.77 points, while the Nasdaq Composite lost 820.20 points, or 3.56%, to 22,207.28. The Dow Jones Industrial Average fell 873.58 points, or 1.88%, to 45,480.04. The Philadelphia SE Semiconductor Index was among the hardest-hit sectors in the wake of 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 the technology, electric vehicle and defense industries. The CBOE Volatility Index, viewed as a reflection of market anxiety, touched its highest level in a month. U.S.-listed shares of Chinese companies, including heavyweights Alibaba Group Holding, JD.com Inc and PDD Holdings closed at steep losses. Qualcomm slid after China's market regulator said the country had launched an antitrust investigation into the semiconductor manufacturer over its acquisition of Israel's Autotalks. The U.S. government is currently in its 10th day of shutdown as a congressional impasse has so far yielded few signs of progress or serious negotiation. This has resulted in a data blackout, with official government economic indicators postponed for the time being. Still, data from independent sources continues unabated. The University of Michigan released its preliminary take on October consumer sentiment, which is drifting along near historic lows as high prices and weakening job prospects remain at the forefront of consumer worries. In the absence of official data, investors look to the U.S. Federal Reserve for clues regarding near-term interest rate cuts. Fed Governor Christopher Waller said that while private employment data continues to show labor market weakness, the central bank should act with caution when reducing the Fed funds target rate as it evaluates the economy. St. Louis Fed President Alberto Musalem echoed that sentiment, saying that another rate cut could be warranted as insurance against a weakening labor market. "I believe that we have to tread with caution" before monetary policy becomes too accommodative, he said. A spate of large financial firms – including JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo – is set to release quarterly results on Tuesday, marking the unofficial launch of third-quarter earnings season. Analysts currently expect third-quarter S&P 500 earnings growth of 8.8% year-on-year, on aggregate, compared with annual growth of 13.8% last quarter and 9.1% in Q3 2024, according to LSEG data. (Reporting by Stephen Culp; Additional reporting by Niket Nishant, Sukriti Gupta, Purvi Agarwal and Johann M Cherian in Bengaluru; Editing by Aurora Ellis)
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